TRANSFER AGENT 101

How Transfer Agents Help Meet Compliance Requirements

A transfer agent plays a critical role in ensuring companies maintain compliance with a wide range of complex regulatory requirements while protecting sensitive shareholder information. Public companies have a legal responsibility when it comes to reporting, compliance and data security. If not managed correctly, the company can be exposed to federal penalties and their shareholders can be exposed to fraud or issues with the Internal Revenue Service (IRS).

Here’s what you need to know about how transfer agents help you stay compliant.

Shareholder and Tax Reporting

To assist companies on their compliance reporting needs, transfer agents manage the various IRS, Securities and Exchange Commission (SEC) and state regulatory reporting requirements companies must complete. The critical documents that a transfer agent provides are completed fully and accurately, and then delivered to the IRS, shareholders and relevant regulatory bodies as required. Common reporting requirements include:

Proxy materials

Transfer agents assist in preparing and distributing proxy materials to shareholders, which include critical information about annual meetings, voting instructions and other information in compliance with SEC regulations.

Annual report data

Transfer agents work with the company to compile and verify the necessary data to include in annual reports.

Transaction statements

Transfer agents prepare and distribute transaction statements to shareholders that summarize their recent stock purchases, transfers, sales, dividends and other account activity.

Cost-basis reporting

Transfer agents calculate and report the original cost of shares, which shareholders need when selling stock to calculate their capital gains or losses for tax purposes.

Year-end tax forms

Transfer agents prepare and distribute year-end tax documents such as Form 1099 to shareholders so they can accurately report capital gains, dividend income and other taxable events to the IRS.

Exchange reports

Transfer agents create and share reports with the relevant stock exchanges to ensure that the company is compliant with all exchange-specific rules and regulations.

Transfer Agent Regulations

Transfer agents are subject to numerous SEC regulations governing how they handle stock transactions and sensitive shareholder data. These requirements ensure that transactions are handled accurately and in a timely manner, even during high-volume trading periods. These regulations govern:

Turnaround times for processing: Transfer agents must meet specific timing requirements for processing stock transactions to ensure shareholder requests are completed without unnecessary delay.
Prompt responses to inquiries: Transfer agents are required to respond to shareholder and company inquiries within a defined period of time to ensure all stakeholders receive necessary information or transaction resolution in a timely manner.
Accuracy of recordkeeping: Transfer agents act as the company’s “registrar,” maintaining an official registry of the number of shares issued and outstanding, as well as names and contact information for the registered shareholders and the number of shares they own.
Retention of records: Transfer agents must securely retain records for a specified period to ensure that data is available as needed for audits, legal requests and regulatory reporting.
Safeguarding funds and securities: In addition to issuing and transferring securities as requested by shareholders, transfer agents are required to implement specific security measures that prevent the loss, theft or misuse of these funds and securities.
Evaluation of internal accounting controls: Transfer agents must be able to prove they have the internal processes in place required to conduct financial transactions in a way that meets all regulatory standards and best practices.
Searches for lost shareholders: Transfer agents manage the escheatment process, which occurs when a state takes possession of abandoned property. The transfer agent works on behalf of a business to identify lost or dormant shareholders and then turns their abandoned assets over to the state that is listed as the shareholder’s last known residence.
Notifications to “unresponsive payees”: Transfer agents reach out to unresponsive shareholders who haven’t claimed dividends or other payments to ensure all funds are accounted for.
Posting, transportation and destruction of certificates: While less common, some shareholders still receive physical stock certificates. Transfer agents are responsible for ensuring the certificate is delivered to the shareholder securely and properly destroyed when no longer valid.

Data Security

With most stock transactions now taking place digitally, companies need to take extra steps to safeguard sensitive shareholder information and prevent unauthorized account access that can lead to fraud. Transfer agents are subject to regulations designed to prevent fraud, as it relates to missing, lost, counterfeit and stolen securities, as well as various laws and regulations relating to privacy and data breaches.

EQ is the first in our industry to introduce facial recognition-powered identity verification to our shareholder portals to bring increased security to the shareholders we serve.

EQ is continually investing in technology to ensure shareholders’ data is protected and their accounts are secure. For example, we recently expanded our dedicated risk and controls function and have heavily invested in data security technology. We are also the first transfer agent in the industry to introduce facial recognition–powered identity verification to our shareholder portals, significantly increasing account access security.

Your transfer agent is the key to ensuring you meet all your shareholder expectations and compliance requirements. At EQ, we provide the accuracy, reliability and responsiveness required to maintain compliance and protect all stakeholders from risk.

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