SEC Proposes First Major Update to Transfer Agent Rules Since 1970s
The U.S. Securities and Exchange Commission has proposed updates to transfer agent regulations to incorporate blockchain technology, aiming to modernize record-keeping for tokenized securities.
The U.S. Securities and Exchange Commission introduced a proposal on Sept. 1 to update its transfer agent rules, marking the first significant revision since the late 1970s. The move is intended to modernize the agency's framework for electronic data and account for the growing use of blockchain technology in securities offerings and share transfers.
SEC Chair Paul Atkins stated that the rules should reflect current and future operations of transfer agents, including their use of distributed ledgers. Transfer agents serve as the official record-keepers for securities, processing transfers and maintaining ownership lists within national clearance and settlement systems.
The proposal seeks to integrate distributed ledgers into the existing Section 17A framework of the Exchange Act rather than creating a separate charter for crypto-specific entities. This approach aims to avoid a fractured market where tokenized and traditional stocks operate under different systems.
Joris Delanoue, writing for Fairmint, noted that the industry faces risks of a modern paperwork crisis if ownership data remains fragmented across token wrappers, special-purpose vehicles, and off-chain databases. He argued that the cap table should function as the system of record, with equity issued and transferred directly on-chain.
To ensure the framework functions effectively, the industry is looking for the SEC to address several operational areas. These include differentiating native on-chain registers from third-party wrappers on Form TA-2, updating holder identification requirements to allow for digital IDs and wallets, and recognizing programmable compliance through smart contract restrictions.
While the commission continues to evaluate the role of distributed ledgers, the proposal maintains that a regulated intermediary remains essential. A wallet address is not considered a substitute for a transfer agent, which is required to map on-chain assets to identifiable owners and enforce regulatory compliance.
