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Trust Examination Manual
Section 11- IntroductionRationale For Examinations
There are three primary purposes underlying the FDICs examination program for banks engaging in registered transfer agent activities. First, regulatory examinations of registered transfer agents play a very large role in realizing the important public policy objectives of maintaining efficient and orderly securities markets and in safeguarding investor securities and the funds related thereto. In addition, the Corporations registered transfer agent examination program is designed to fulfill the oversight responsibilities delegated to it as the primary federal regulator of state-chartered nonmember banks by the Securities and Exchange Act of 1934. Finally, to accomplish the FDICs primary mission of protecting depositors, the Corporation must examine the transfer agent activities of the banks it supervises in order to detect and prevent situations which might threaten the viability of banks through diminution of their capital accounts.Public Policy Concerns
In enacting the Securities and Exchange Act of 1934 (1934 Act), Congress recognized the role that fair, efficient, and orderly securities markets play in promoting trade and commerce and in maintaining a prosperous and efficient economy. Since FDIC-insured banks act as transfer agent for most of the corporate equity and debt securities issued in the U.S., as well as acting as bond registrar for most municipal debt securities, the FDIC carries out an important function for realizing the objectives of the 1934 Act. The Corporations transfer agent examinations are designed to ensure that banks perform their securities transfer activities in a highly efficient manner and in full compliance with applicable laws and regulations.The Statutory Framework
The statutory basis of the Corporations registered transfer agent examination program is provided by the 1934 Act. Specifically, Section 17A(c)(1), added to the 1934 Act in 1975, requires all transfer agents to register with the appropriate regulatory agency (ARA) prior to conducting transfer agent activities for securities registered under Section 12 of the 1934 Act. As a result a multi-agency regulatory structure for transfer agents was created. Banks, bank holding companies, and their subsidiaries that transfer registered securities must first register with both ARA and with the Securities and Exchange Commission (SEC).
Section 3(a)(34) of the 1934 Act designates the FDIC as the ARA for FDIC-insured state-chartered banks that are not members of the Federal Reserve System. The FDIC is also the ARA for subsidiaries of such banks.
The Federal Reserve is responsible for state member banks and trust companies and their subsidiaries, as well as bank holding companies and their subsidiaries. The Office of the Comptroller of the Currency is responsible for National banks and their subsidiaries.
All other registered transfer agents, including thrifts and thrift holding companies supervised by the Office of Thrift Supervision, register with the Securities and Exchange Commission.
Section 17A(d)(1) of the 1934 Act requires registered transfer agents to comply with all rules and regulations established by either the SEC or the ARA. Section 17A(d)(2) makes transfer agents for whom the SEC is not the ARA subject to the enforcement provisions of Section 8 of the FDI Act. All persons doing business with a such a transfer agent are deemed to be depositors as defined in Section 8(c) of the FDI Act.
Section 17A(d)(3)(A)(ii) assigns the ARA the primary responsibility of examining and enforcing compliance with applicable rules and regulations. The statute, however, preserves the SECs right to make rules governing transfer agent activities or to enforce compliance with laws, rules and regulations governing registered transfer agent operations. In fact, Section 17A of the 1934 Act establishes a cooperative framework in which the SEC and the ARA will work together to ensure that the purposes of the 1934 Act are achieved. Under this framework the SEC must solicit the views of the ARA before proposed rules and regulations are released for public comments.
Section 17(c)(3) of the 1934 Act requires that the SEC and the ARA notify each other of any examination conducted by it, and to furnish the report, and any other data in connection with such examination, to the other. Currently, the SEC has a standing request for a copy of any FDIC registered transfer agent examination report meeting certain conditions.
In addition, the SEC has the right to conduct examinations of any registered transfer agent, and on occasion, has exercised this right. In such cases, however, the SEC is required to give notice of its intent to conduct such an examination, and to consult with the ARA concerning the feasibility and desirability of coordinating such an examination with examinations conducted by the ARA with a view to avoiding unnecessary regulatory duplication or undue regulatory burden for affected registered transfer agents.Safety & Soundness Considerations
To the extent that a registered transfer agent fails to conduct transfer agent operations in a safe and efficient manner, or fails to comply with applicable laws and regulations, the transfer agent function could incur contingent liabilities or estimated losses which could adversely impact the banks capital accounts. For example, a registered transfer agent might have to buy-in an over issuance of securities, or delays in completing transfers of securities might lead to monetary losses among securityholders. The Corporations registered transfer agent program is designed to ensure that bank transfer agents conduct securities transfer activities in a controlled, accurate, and prompt manner and in accordance with all applicable rules and regulations.
The role of the FDIC examiner in the examination of registered transfer agents of insured state-chartered nonmember banks, or their subsidiaries, is threefold:
When necessary, the FDIC's Board of Directors or a Regional Director will institute enforcement actions against a bank that is either unwilling or incapable of correcting serious deficiencies in its transfer agent operations.
|Last Updated 05/10/2005|