SIFMA, ASA Tout SEC E-Delivery Rule as Cost-Saving

As the public comment period for the Security and Exchange Commission’s electronic delivery rule ends, several prominent industry groups have voiced support for what they see as a future-forward approach to satisfying information delivery requirements under federal securities laws.

The American Securities Association and Securities Industry and Financial Markets Association this past week submitted public comment letters urging the SEC to finalize Regulation E-Delivery, a proposed rule that would allow issuers, intermediaries and other covered entities to deliver disclosures electronically by default. Both groups cited investor preference and cost savings as chief reasons for the SEC to finalize its rule.

The SEC on June 21 submitted the rule to the White House Office of Information and Regulatory Affairs for final regulatory review. On July 21, the SEC published the rule in the Federal Register and opened a 60-day comment period that ends today. More than 80,000 comments were submitted as of this afternoon.

Rule, E-Delivery Background

Currently, many required regulatory disclosures and reports under the federal securities laws are delivered in paper format, unless the recipient elects otherwise. If adopted, Regulation E-Delivery would generally supersede the SEC’s current guidance-based e-delivery framework and permit e-delivery as the default method of delivery to investors, clients and other covered entities.

To facilitate the new e-delivery approach, the SEC also proposed to rescind Rule 30e-3 under the Investment Company Act of 1940, which provides alternative means for registered investment companies to satisfy shareholder report transmission requirements and amends current rules addressing the dissemination of proxy materials and tender offer materials.

The proposed rule includes a transition process for investors and others who currently receive regulatory information in paper format. Those recipients would receive two paper notices if the rule required them to be transitioned to default e-delivery. The notices would provide information about the upcoming transition and the ability to opt out of e-delivery.

Congress has also repeatedly considered—including during the current term—legislation establishing electronic delivery as the default for investment disclosures. A provision in the INVEST [Incentivizing New Ventures and Economic Strength Through Capital Formation] Act, which passed the House of Representatives in January but faces an uncertain future in the Senate, includes a provision to establish electronic delivery as the default for investment disclosures.

SIFMA and other industry groups in June wrote to the Senate Committee on Banking, Housing and Urban Affairs asking for swift passage of the INVEST Act, maintaining that a majority of retail investors prefer the communication method.

Decisions about paper or electronic statements are also being considered in the retirement industry. A provision in the SECURE [Setting Every Community Up for Retirement Enhancement] 2.0 Act, for example, requires retirement plans to provide at least one paper benefit statement per year for defined contribution plans and one every three years for defined benefit plans, beginning with plan years starting on or after this January 1. Participants may still opt out of paper delivery in favor of electronic.

Investor Preferences, Cost-Saving 

The ASA’s letter, dated today, urged the SEC to adopt the rule largely for investor preference and cost-saving purposes. It quoted the Office of the Investor Advocate, which reported in May that nearly 80% of U.S. investors prefer some form of e-delivery for financial disclosures that do not include personal information, and 63% of investors preferred e-delivery even for disclosures that did include it.

The ASA also described the rule as cost-saving: The Investment Company Institute last year estimated that a default e-delivery regime could save the industry as much as $800 million annually.

In its letter, SIFMA cited a survey of its members this year that found firms sent an average of 14 documents per retail account per year, each firm spending an average of $62 million. Of those costs, more than 95% were attributable to postal delivery. Aside from touting the cost–saving benefits of the rule, SIFMA added in its letter that the SEC should “seek to avoid imposing new implementation of ongoing compliance costs that could reduce the investor benefits and cost savings expected from electronic delivery.”

While the ASA supports the e-delivery rule, it also recommended the SEC’s final rule not contain a provision requiring nonobjecting beneficial owner lists to include electronic addresses. A NOBO is an investor who owns securities and consents to have their personal information shared with the company issuing those securities.

“We urge the SEC to remember that investors gave their broker/dealers an email address and a mobile number so the firm could service their accounts, not so that information could be forwarded to third parties who have no obligation to protect them,” said Chris Iacovella, ASA president and CEO, in a statement. “The SEC can adopt this rule without any changes to the NOBO list, and that would avoid needlessly confusing investors and putting their personal information at risk.”

ASA also recommended shortening the proposed 180-day investor notice period to 60 days, replacing the suggested three-business-day paper fulfillment deadline with a “commercially reasonable standard,” pursuing a uniform e-delivery standard across self-regulatory organizations, and clarifying how e-delivery interacts with state unclaimed property laws following an account holder’s death.