SEC Proposes Overhaul of Transfer Agent Rules, Naming Blockchain Directly

The Securities and Exchange Commission (SEC) proposed Tuesday to update the rules governing registered transfer agents for the first time since most of them were adopted in the late 1970s and early 1980s, explicitly naming blockchain technology as one of the tools the modernized framework is meant to accommodate.

Transfer agents maintain the official record of who owns a company's securities and process the transfer, issuance and cancellation of both paper and electronic shares. The SEC said in its announcement that the rules have not kept pace with how transfer agents actually operate today.

"This proposal would streamline and modernize the Commission's rules to reflect transfer agents' current processes and operations, including the use of electronic communications and blockchain technology in connection with securities offerings and the transfer of shares," said SEC Chairman Paul Atkins.

The proposal, released alongside a fact sheet, amends several existing rules rather than creating a standalone regulatory category for blockchain-native transfer agents. It would extend the effective date of transfer agent registration from 30 to 45 days, update the terminology in the rules to reflect contemporary electronic and blockchain-based recordkeeping, align turnaround and processing standards with the current securities settlement cycle, and raise the threshold that triggers limitations on a transfer agent's business expansion from 75% to 95%. It would also consolidate recordkeeping and retention requirements into a single retention period and modernize the rules governing electronic systems and third-party recordkeepers.

Two new rules would apply specifically to compliance and to restrictive legends. Proposed Rule 17ad-30 would require transfer agents to adopt written policies designed to achieve compliance with federal securities law, while proposed Rule 17ad-31 would set requirements for placing and removing restrictive legends on securities and bar transfer agents from facilitating unregistered securities transactions unless they have a reasonable basis to believe the transaction, or any chain of transactions it is part of, does not violate securities registration requirements. Existing Rule 17ad-12, which currently addresses safeguarding of funds and securities, would be reframed as a broader risk-management rule requiring transfer agents to maintain separate bank accounts for client funds and to adopt a business continuity plan. The proposal would also rescind Rule 17ad-4, which currently exempts certain securities and transfer agents from turnaround and recordkeeping requirements, on the grounds that technological advances have made those exemptions unnecessary.

"Market participants are actively seeking to bring blockchain-native, or 'onchain,' transfer agents into the U.S. market," the SEC said, pointing to firms developing systems for blockchain-based ownership records, tokenized fund administration and cross-chain interoperability. The agency was explicit, however, that the proposal does not by itself approve any specific blockchain-based transfer system or grant blockchain-based transfers different regulatory treatment than paper or electronic ones; it only gives the existing framework clearer language to assess those activities against.

The proposing release will be published in the Federal Register, opening a 60-day public comment period. The rules would not take effect, and the practical impact on firms building blockchain-based transfer agent systems will not be clear, until the SEC reviews those comments and adopts a final version.