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Trust Examination Manual

Section 11- Registered Transfer Agent Examinations

FDIC Registered Transfer Agent Examination Ratings

The FDIC Registered Transfer Agent Examination Ratings (RTA ratings) became effective on May 4, 1989, and were transmitted to field examiners via Regional Director Memorandum 89-056, "Examination Ratings for Registered Transfer Agent Examinations".  The RTA ratings are not interagency ratings, but were developed for FDIC supervised registered transfer agent examinations.  The RTA ratings consist of a single composite rating, i.e., there are no individual component ratings assigned.  The RTA ratings take into consideration certain managerial, operational and compliance factors that are common to all transfer agents.  Under this rating system, the FDIC endeavors to ensure that all FDIC supervised registered transfer agents are evaluated in a uniform manner, and that supervisory attention is appropriately focused on registered transfer agents exhibiting operational and compliance weaknesses.

Each registered transfer agent is assigned an RTA rating based on an evaluation of the transfer agents operational performance and compliance with outstanding laws and regulations.  Of particular importance is the registered transfer agent's compliance with the SEC regulations contained in 17 C.F.R. 240.17Ad, described in detail throughout this manual, which set forth most of the performance standards established for registered transfer agents.  

The Composite rating is based on a 1 to 5 numerical scale.  A 1 indicates the highest rating, the strongest performance and the least degree of supervisory concern, while a 5 indicates the lowest rating, weakest performance and, therefore, the highest degree of supervisory performance.  The following section contains the composite rating definitions.

Composite Ratings

Composite Rating "1"
This institution's registered transfer agent activity has been assigned an examination rating of 1. Transfer agent activities in this group are sound in all important respects. If deficiencies are noted, they are of a minor nature and can be handled in a routine manner without further supervisory involvement.

Composite Rating "2"
This institution's registered transfer agent activity has been assigned an examination rating of 2. Transfer agent activities accorded this rating are fundamentally satisfactory, but may reflect modest weaknesses. Deficiencies are generally correctable in the normal course of business. The need for supervisory response is usually limited.

Composite Rating "3"
This institution's registered transfer agent activity has been assigned an examination rating of 3. Transfer agents with this rating are experiencing a combination of factors which require prompt corrective action. Weaknesses of some significance exist in several areas, or serious deficiencies exist in one or two areas. Considering the volume and type of business, a significant adverse impact does not exist now; but if left unchecked, the bank's ability to properly carry out its responsibilities could be endangered. More than ordinary supervisory concern exists, and additional monitoring may be necessary.

Composite Rating "4"
This institution's registered transfer agent activity has been assigned an examination rating of 4. Unsatisfactory and unacceptable conditions exist in transfer agents with this rating. Significant weaknesses exist in a number of areas, such as prolonged and repeated violations, deficient or missing controls and audits, or critically deficient policies and procedures. Service to clients and securityholders is, or is likely to become, inadequate, with clearly excessive delays or frequent errors. These problems are not being adequately resolved. Affirmative action and supervision by regulatory authorities is warranted.

Composite Rating "5"
This institution's registered transfer agent activity has been an examination rating of 5. A combination of critical deficiencies and adverse trends exist in transfer agents with this rating. The likelihood of ultimate continuation of transfer agent services is in serious question. Major and prolonged operational problems and serious repeated violations exist. Numerous out of proof conditions are unresolved, turnaround standards are not being met, and unresolved securityholder complaints exist. Depending on the volume and nature of transfer services, losses may pose a threat to capital. Immediate corrective action and continuous supervision, as required by the regulator, are necessary.

Rating Guidelines

Although the FDIC Registered Transfer Agent Examination Rating System does not incorporate individual component ratings, there are four broad considerations that should be evaluated in determining the appropriate composite rating to assign.  These considerations are : management's supervision of transfer agent activities, the transfer agent's compliance with applicable rules and regulations, the transfer agent's operations, and the adequacy of internal controls and audits.  Detailed below are guidelines for each of these areas with respect to each composite rating.

Composite Rating "1"
  • Management and the Board's supervision and support of transfer agent activity is satisfactory.  Transfer agent staff is knowledgeable and competent
  • Transfer agent staff are knowledgeable of all applicable laws and regulations; violations, if any, consist of a few, inadvertent technical violations that are easily correctable.  There are no repeat violations from previous examinations.
  • The transfer agent function is sufficiently staffed for the volume and complexity of securities transferred.  Operational systems and records provide for the orderly and efficient flow of work, including the prompt and diligent completion of securities transfers and related transactions.  Any operational deficiencies are strictly minor in nature, readily correctable and have no significant adverse impact on securityholders or other clients.
  • Internal controls adequately minimize the risk of errors, losses, the manipulation of records, misappropriation of funds or securities, and the improper issuance of securities.  An effective audit program covers transfer agent activities.

These transfer agents exhibit the strongest performance and give no cause for supervisory concern.

Composite Rating "2"
  • Senior management and the Board are not directly involved in the supervision of transfer agent activity, but are considered capable of intervening effectively if conditions warrant. Transfer agent staff is reasonably knowledgeable and capable given the size and complexity of transfer agent activities.
  • Transfer agent staff has a satisfactory knowledge of the most important laws and regulations applicable to the transfer agent area.   Isolated violations may be present, but they are inadvertent and minor in nature. Any repeat violations should be few in number and involve only minor, technical regulatory requirements. All violations are readily correctable.
  • The transfer agent function is adequately staffed for the volume and complexity of securities transferred.  Operational systems and records are adequate and allow for the performance of securities transfers and related transactions within regulatory requirements.  Operational deficiencies are minor and technical in nature, readily correctable, and have no significant adverse impact on securityholders or other clients.
  • Satisfactory internal controls are in place. Audit coverage is adequate in frequency and scope, with adequate follow up on audit exceptions.  Some minor internal control and audit deficiencies may be present, but, given the size and complexity of transfer agent operations, pose no risk to the transfer agent function.
These transfer agents present no material supervisory concerns and, as a result, the supervisory response is informal and limited.

Composite Rating "3"
  • Senior management and the Board remain largely passive with respect to supervision and support of transfer agent activities.  Although senior management and the Board's lack of active involvement has not resulted in serious deficiencies in transfer agent operations, the lack of active oversight may be evident.   Day to day management of the transfer agent area is adequate, but is somewhat lacking in either knowledge and/or experience, and may have difficulty responding to problems or changing circumstances.
  • While transfer agent staff's technical knowledge and awareness of applicable laws and regulations is adequate, compliance is characterized by an accumulation of inadvertent violations, caused by inattention to detail.  Most violations are technical in nature, but substantive violations may also have occurred.  The correction of substantive violations can be expected, but a continuation of technical violations is likely unless controls in the transfer agent area are strengthened.
  • Transfer agent operations are only fair.  Securities transfers and related transactions are completed, but timeliness and/or accuracy requires improvement.  Deficiencies in areas of lesser overall importance remain, without prompt corrective action being taken.  Overall operations, however, are not seriously deficient and service to securityholders has not been seriously impaired.
  • Internal controls and/or audits are deficient, increasing the risk of errors, losses, misappropriations of funds and/or securities, the manipulation of records, and the improper issuance of securities. The deficiencies, however, are not of a magnitude to pose a serious threat to the transfer agent or securityholders.

These transfer agents present a moderate level of concern and may require more than a normal supervisory response, which may include follow-up visitations to evaluate corrective actions or, at the discretion of the appropriate Regional Director, an informal enforcement action.

Composite Rating "4"
  • Senior management and the Board have failed to take action to remedy operational deficiencies, caused by weak day-to-day management of the transfer agent area.  The management of the transfer agent area is weak and the day-to-day management of transfer agent activities lack the knowledge and ability to supervise adequately the volume and type of transfer agent activity conducted.  Management of the transfer agent area may display a lack of interest in transfer agent activities that has resulted in significant operational deficiencies.  Operational deficiencies are not corrected as they occur, and thus become persistently more severe.
  • Transfer agent staff lacks the necessary knowledge and awareness of the laws and regulations applicable to the transfer agent area.  As a result, substantive violations occur regularly and may go uncorrected for prolonged periods.
  • Transfer agent operations are deficient in one or more fundamental operational areas.  Securities turnaround performance may not meet regulatory requirements and recordkeeping performance may be characterized by inaccuracy and/or a failure to post records promptly.  Operational deficiencies may persist and the correction of operational deficiencies requires a serious commitment by senior management.  Transfer agent operations do not provide for the adequate monitoring of securities transfer performance and fails to provide clients and securityholders an acceptable level of service.
  • Internal controls and/or audits are seriously deficient and result in a high degree of risk that errors, losses, misappropriation of funds and/or securities, the manipulation of records, and the improper issuance of securities may occur and remain undetected.

These transfer agents present a moderately high level of supervisory concern and require close supervisory attention, which means, in most cases, formal enforcement action is necessary to address the problems.

Composite Rating "5"
  • Supervision by senior management and the Board is either nonexistent or ineffective.  Management of the transfer agent area is fundamentally weak.  Day-to-day management and staff lack the capability to handle the volume and complexity of transfer agent business.  Operational deficiencies are not being addressed.
  • Substantive violations of applicable laws and regulations occur regularly and may go uncorrected for long a prolonged period.   Little or no effort is made to ensure and monitor compliance with applicable laws and regulations.
  • Transfer agent operations are critically deficient.  Numerous or serious out-of-proof conditions have occurred and remain unresolved.   Serious operating deficiencies have been allowed to remain uncorrected for extended periods.  Sufficient and/or competent staff may are lacking.  Client and securityholder complaints are numerous.  The transfer agent is unable to properly service the security issues transferred or the securityholders of those issues.
  • Internal controls and/or audits are either nonexistent or critically deficient. There is a heightened probability that errors, losses, misappropriation of funds and/or securities, manipulation of records, or the improper issuance of securities may occur and remain undetected.

These transfer agents present a high degree of supervisory concern.  A immediate supervisory response is needed in order for the transfer agent to remain viable. Ongoing supervisory attention is necessary

Disclosure of RTA Rating

Disclosure of the RTA rating to bank management is appropriate and is intended to encourage a more complete and open discussion of examination findings and recommendations.  Therefore, management is provided with useful information to assist in improving and/or maintaining operational effectiveness and compliance with applicable laws and regulations.

Discussions With Management

The examiner-in-charge should discuss the recommended RTA rating with the management of the transfer agent area, and, when appropriate, the senior management and/or Board of Directors of the institution.  Examiners should clearly explain that the RTA rating is tentative and subject to final approval by the Regional Director.  Examiners should discuss the factors considered in assigning the RTA rating.  In addition, management should be reminded that the RTA rating is subject to the confidentiality rules imposed by Part 309 of the FDIC's Rules and Regulations.

Registered Transfer Agent Examination Intervals

The statutory requirements of Section 10(d) of the FDI Act do not apply to registered transfer agent examinations.  Thus, registered transfer agent examinations are governed by internal DSC policy, not statute. Registered transfer agent examinations generally should be conducted concurrently with safety and soundness examinations, except when the size or arrangement of the transfer agent's operations makes it impractical or inefficient to do so.  Although there may be some differences, registered transfer agent examinations are generally subject to the same examination intervals, including appropriate extensions, as safety and soundness examinations.

Regional Directors can make reasonable adjustments to specialty examination intervals to accommodate concurrent examinations where rating differences or alternate state examinations result in examination intervals that are not conducive to scheduling concurrent examinations.  Reasonable adjustments include extending the examination cycle for 1- and 2-rated registered transfer agents.  Although not permitted by statute for safety and soundness examinations, internal policy allows Regional Directors also to extend the examination cycle for 3-rated registered transfer agents.  The examination interval for 4-, or 5-rated registered transfer agents should not be extended beyond one year.

When the state supervisory authority has examination responsibility for the safety and soundness examination of an institution, it is not the FDIC's responsibility to conduct a registered transfer agent examination to maintain compliance with the requirements of Section 10(d) of the FDI Act, should the state supervisory authority fail to conduct an examination. 

Examinations by State Authorities

As of the moment when this manual was being written, only Louisiana, South Carolina, and Tennessee conducted examinations of registered transfer agents.  In the past, however, other states have included examination of registered transfer agents in their supervisory programs, and at least one state is considering establishing such a program for registered transfer agents.  In those cases where the state supervisory authority conducts examinations of registered transfer agents, every effort should be made to coordinate examination schedules with state authorities to take advantage of state resources, to minimize duplications of effort, and to lessen business disruptions to the institutions.  In those cases where the size and complexity of transfer agent operations make it practical and efficient to do so, consideration should be given to conducting registered transfer agent examinations with state authorities.

Refer to Chapter 1.1, Section VI of the DSC Manual of Examination Policies, "Guidelines for Relying of State Examinations" for a discussion of the FDIC's program for cooperating with state bank regulatory agencies.

Limited Scope Examinations And Visitations

The terms "limited scope examination" and "visitation" may be defined as any examination that does not meet the minimum requirements of a full-scope examination pursuant to Section 10(d) of the FDI Act.  Limited scope examinations and visitations have a flexible format and may be used to: (1) determine changes in a registered transfer agent's risk profile; (2) monitor compliance with a corrective program; (3) determine progress in correcting deficiencies noted at the previous examination; and (4) act as an investigative and supervisory tool.

Completion of the standard examination report form is not required although appropriate report pages may be included if considered necessary to clarify a finding or recommendation. Results should generally be conveyed in a memorandum from the examiner-in-charge to the Regional Director. If the examination or visitation results are to be sent to the institution, they can be in whatever form (letter or other suitable format) is considered appropriate.

Examination Planning

Pre-examination planning can enhance the efficiency of the examination process. As part of the pre-examination planning process, examiners should review the previous Registered Transfer Agent Report of Examination and the correspondence file. Examiners can also access additional information concerning registered transfer agent operations via the BITS Supervisory Analysis System (SAS).  Via the SETS subsystem, examiners can access the Specialty Structure Information subsystem, where the following information about FDIC registered transfer agents is available:

  • Filings of Form TA-1, including type of filing, e.g. registration, amendment of TA-1, or deregistration, with the date such filing was received
  • Whether the transfer agent transfers own-bank or affiliate's securities
  • Entities providing private label transfer agent services to the transfer agent
  • Entities for which the transfer agent provides services
  • Name and address of the transfer agent's data processing servicer
  • Miscellaneous information, such as the TA#, FINS#, address of transfer agent's headquarters, location(s) where principal transfer agent activities are conducted, and the name and telephone number of a contact at the registered transfer agent

Another important source of information about transfer agent operation is the registered transfer agent's annual TA-2 filing.  Each registered transfer agent is required to file annually Form TA-2 with the SEC.  The TA-2 is a calendar year-end report and must be submitted to the SEC no later than March 31st.  Included in the information provided on Form TA-2 is whether the transfer agent has engaged the services of an outside service provider, including the name of such outside servicers; whether the transfer agent has contracted to provide services to outside transfer agents, including the name of such entities; whether the transfer agent has amended Form TA-1; the level of transfer agent activity, including the number and type of issues transferred and the number of accounts; information on record differences, buy-ins, turn-around performance, and searches for lost securityholders.  Examiners should consider obtaining the institution's last Form TA-2 filing (e.g. via mail or fax) prior to starting the on-site examination.

As a general rule, bankers should be given at least two weeks notice of an upcoming registered transfer agent examination in order to provide them with enough time to complete pre-examination requests. A shorter period is permissible if the institution is not unduly burdened or if a shorter period is occasionally needed due to planning requirements.  Examiners should also consider contacting the person who oversees transfer agent operations prior to commencing the on-site examination.  Contact can be in person at the institution, or by telephone. This will allow the examiner-in-charge to discuss any significant changes that may have occurred in the transfer agent's operations, including changes in the number and type of securities transferred, outside service providers, or services provided to outside transfer agents; significant changes in the volume of items processed; the existence of out-of-balance conditions or buy-ins; changes in management or key personnel; and any issues related to the items included on the First Day Examination Request List.

Disclosure of Report of Examination

The report of examination is highly confidential. Although a copy is provided to the bank, that copy remains the property of the FDIC. Without the FDIC's prior authorization, directors, officers, employees and agents of a bank are not permitted to disclose the contents of a report. Under specified circumstances, FDIC regulations permit disclosures by a bank to its parent holding company or majority shareholder.

FDIC regulations do not prohibit employees or agents of a bank from reviewing the report of examination if it is necessary for purposes of their employment. Accountants and attorneys acting in their capacities as bank "employees" or agents may review an examination report without prior FDIC approval, but only insofar as it relates to their scope of employment. The Division believes the definition of "agent" includes an accountant or accounting firm which performs an audit of the bank.

Reports of examination are routinely provided to the bank's chartering authority. Therefore, state bank examiners may review the bank's copy of an FDIC examination during a state examination.

Workpapers

Workpapers should be a written trail of decisions and supporting logic that also indicate individual responsibility. They should provide written support for examination and verification procedures performed and the assertions of fact or opinion in the report of examination.  All procedures performed during the examination should be sufficiently documented in the workpapers. All workpapers should be labeled with the institution's name and location, dated, and signed or initialed by the examiner or assistant examiner who prepared the document.

Retention of workpapers beyond one examination should be confined to those banks with existing or pending administrative actions, or special documents relating to past insider abuse, documents which are the subject of previous criminal referrals, or other such sensitive documents. While the retention of workpapers beyond one examination is discouraged, field office supervisors have the discretion of retaining major report or examination schedules and other pertinent workpapers for an additional examination.

 

    Last Updated 05/10/2005

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