Federal Register/Vol. 63, No. 133/Monday, July 13, 1998/Rules
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37688 Federal Register / Vol. 63, No. 133 / Monday, July 13, 1998 / Rules and Regulations [FR Doc. 98±18292 Filed 7±10±98; 8:45 am] a transfer agent that may not be Year The Commission views the Year 2000 BILLING CODE 8010±01±E 2000 compliant. problem as an extremely serious issue. EFFECTIVE DATE: August 12, 1998. A failure to assess properly the extent of the problem, remediate systems that are SECURITIES AND EXCHANGE FOR FURTHER INFORMATION CONTACT: Jerry not Year 2000 compliant, and then test COMMISSION W. Carpenter, Assistant Director, 202/ those systems could endanger the 942±4187; Thomas C. Etter, Jr., Special nation's capital markets and place at 17 CFR Part 240 Counsel, 202/942±0178; or Jeffrey risk the assets of millions of investors. Mooney, Special Counsel, 202/942± In light of this, both transfer agents and [Release No. 34±40163; File No. S7±8±98] 4174, Division of Market Regulation, the Commission are working hard to Securities and Exchange Commission, address the industry's Year 2000 RIN 3235±AH42 450 Fifth Street, NW., Mail Stop 10±1, Problems. Washington, DC 20549. As part of its ongoing efforts relating Year 2000 Readiness Reports To Be SUPPLEMENTARY INFORMATION: to the Year 2000 on March 5, 1998, the Made by Certain Transfer Agents Commission requested comment on I. Introduction proposed Rule 17Ad±18 that would AGENCY: Securities and Exchange At midnight on December 31, 1999, require transfer agents to file at least one Commission. unless the proper modifications have report with the Commission regarding ACTION: Final rule. been made, the program logic in many its Year 2000 compliance.2 The of the vast majority of the world's proposed rule noted that transfer agents SUMMARY: The Securities and Exchange computer systems will start to produce Commission (``Commission'') is present special considerations for the erroneous results because, among other adopting Rule 17Ad±18 under the Commission because unlike other things, the systems will incorrectly read Securities Exchange Act of 1934 entities regulated under the Exchange the date ``01/01/00'' as being January 1 (``Exchange Act'') to require certain Act transfer agents have no self- of the year 1900 or another incorrect transfer agents to file with the regulatory organization (``SRO'') to date. In addition, systems may fail to Commission two reports regarding their assist them and the Commission in detect that the Year 2000 is a leap year. 3 Year 2000 compliance. The reports will addressing Year 2000 issues. Therefore, Problems also can arise earlier than increase transfer agent awareness of the the Commission's only information from January 1, 2000, as dates in the next specific steps they should be taking to non-bank transfer agents is directly from millennium are entered into non-Year prepare for the Year 2000; help the transfer agent themselves. 2000 compliant programs. Year 2000 The Commission received 26 coordinate industry testing and Problems could have negative comment letters in response to the contingency planning; supplement the repercussions throughout the world's proposed rule.4 The majority of the Commission's examination module for financial systems because of the Year 2000 issues and identify potential extensive interrelationship and 2 Release No. 34±39726, (March 5, 1998), 63 FR Year 2000 compliance problems; and information sharing between U.S. and 12062 (March 12, 1998). provide information regarding the 3 foreign financial firms and markets.1 SRO is defined in Section 3(a)(26) of the securities industry's preparedness for Exchange Act, 15 U.S.C. 78c(a)(26). the Year 2000. The reports are designed 4 All comment letters and a summary of the 1 International Organization of Securities comments are available in File No. S7±8±98 at the to be available to the public, which will Commissions, Statement of the IOSCO Technical Commission's Public Reference Room, 450 Fifth enable issuers and other parties to Committee on Year 2000 (1997), available at http:/ Street, NW., Washington, DC 20549. The comment assess the risks of doing business with /www.iosco.org. period closed on April 27, 1998. See also Release Federal Register / Vol. 63, No. 133 / Monday, July 13, 1998 / Rules and Regulations 37689 commenters generally supported the III. Discussion of Significant Issues similar body, is responsible for spirit of the Commission's proposed executing the plans; A. Reporting Threshold rule with some commenters making (3) Whether its Year 2000 remediation suggestions on how they believed one or The Office of Thrift Supervision plans address all domestic and more aspects of the proposed rule could (``OTS'') requested that the Commission international operations, including the be improved. However, the majority of extend the exemption in the proposed activities of its subsidiaries, affiliates, commenters objected to the requirement rule for bank transfer agents to include and divisions; for an independent accountant's report savings associations regulated by the (4) Whether it has assigned existing and objected to the Year 2000 reports OTS. The OTS stated that savings employees, hired new employees, or submitted by the transfer agents and associations, unlike other non-bank engaged third parties to execute its Year transfer agents, are subject to related accountant's report being made 2000 remediation plans; and comprehensive examinations by a available to the public. Based on the (5) Whether it has conducted internal Federal banking agency, using the same comments received, the Commission is and external testing of its Year 2000 uniform examination standards solutions and whether the results of adopting the proposed rule with developed under the oversight of the those tests indicate that the non-bank changes discussed below. Federal Financial Institutions transfer agent has modified its software II. Description of the Proposed Rule Examination Council. The OTS also to correct Year 2000 problems. noted that it is subject to similar The American Institute of Certified The Commission proposed Rule Congressional oversight on Year 2000 Public Accountants (``AICPA'') 17Ad±18 to require non-bank transfer issues as the Commission and the other commented that the required attestation agents to file at least one report with the Federal bank regulatory agencies. The report would be difficult for Commission regarding their Year 2000 OTS believes that it would be independent public accountants to compliance. Under the proposed rule, a duplicative and inconsistent to require provide.9 The AICPA explained that non-bank transfer agent was a transfer savings associations to file the reports some of the required assertions are not agent whose appropriate regulatory with the Commission exempting banks appropriate for accountant attestation agency (``ARA'') was the Commission.5 from the requirement. because the assertions are not capable of Transfer agents that were also banks and The Commission agrees with the OTS. reasonably consistent measurement whose ARA was one of the federal Accordingly, the rule as adopted against established criteria. Currently, banking agencies would have been excludes from its reporting there are no established criteria related exempt from the proposed rule. The requirements transfer agents that are to Year 2000 remediation efforts. The initial report would have been due no savings associations regulated by the lack of established criteria would likely later than 45 days after the Commission OTS. Therefore the term ``non-bank result in significant variation in the adopted the rule. Non-bank transfer transfer agent'' used in the rule and in examination procedures performed by agents that did not qualify for an the remainder of this release means a independent public accountants and exemption under existing Rule 17Ad± transfer agent whose: (i) Appropriate thus reduce the usefulness of the regulatory agency, as that term is 13(d) would have been required to attestation reports. In addition, the defined by 15 U.S.C. 78(c)(34)(B), is the submit follow-up reports to the AICPA expressed concern that the Commission; but (ii) is not a savings Commission on August 31, 1998, and purpose and conclusions of the association, as defined in Section 3 of August 31, 1999.6 The follow-up reports attestation report could be the Federal Deposit Insurance Act, 12 misunderstood. The AICPA was also would have included an attestation U.S.C. 1813, which is regulated by the primarily concerned that uninformed by an independent public accountant as OTS. Because the Commission will users of the attestation reports would to whether there was a reasonable basis continue to be the ARA for these non- place undue reliance on them. for the non-bank transfer agent's bank transfer agents, the Commission The AICPA suggested that an ``agreed- assertions in the reports. will continue to consult with the OTS upon procedures'' engagement, instead As noted in the proposed rule, the about the results of their examinations. of an attestation engagement, would Commission has advised all transfer B. Attestation Requirement more effectively meet the Commission's agents that if a transfer agent's computer goals. Pursuant to such an engagement, systems have Year 2000 Problems, the The proposed rule would have non-bank transfer agents would engage transfer agent's record may be required transfer agents that did not independent public accountants to inaccurate or not current and therefore qualify for an exemption under existing perform and to report on specific be in violation of Rules 17Ad±6 and Rule 17Ad±13(d) to make assertions procedures designed to meet the 17Ad±7 under the Exchange Act.7 about their efforts to address Year 2000 Commissions objectives. This would problems and to engage an independent eliminate the variability of examination public accountant to attest to their procedures performed by independent No. 34±39859; (April 14, 1998), 63 FR 19430 8 (extending the comment period from April 13, assertions. As proposed, each non-bank public accountants and thus increase 1998, to April 27, 1998).