Institute Files Comment Letter on SEC Year 2000 Temporary Rule Proposals for Transfer Agents and Broker-Dealers, April 1998

Washington, DC, April 14, 1998 - The Institute recently filed with the Securities and Exchange Commission a comment letter regarding the SEC's proposed temporary rule and temporary rule amendment that would require nonbank transfer agents and certain broker-dealers, respectively, to file initial and followup progress reports regarding their Year 2000 readiness. The proposed temporary rules would also require that the followup reports include an independent accountant's report attesting to the firm's Year 2000 status.

The Institute's letter generally supports the SEC's efforts to monitor the progress of the securities industry's Year 2000 compliance efforts, but opposes extending the proposed reporting requirements to registered investment advisers or investment companies. The letter recommends that certain modifications be made to the proposed rules so as to make them more workable, and notes that should the Commission be disinclined to accept the Institute's recommendations with respect to transfer agents and broker-dealers generally, it should consider implementing certain suggestions with respect to mutual fund transfer agents and underwriters. Accordingly, the letter recommends that the Commission:

Delete the proposed independent accountant attestation requirement, or modify it to address concerns that independent accountants may not have the requisite technical expertise or personnel capacity necessary to perform the attestation as presently proposed.
Provide that the proposed reports will be treated confidentially. The letter explains that because of the technical nature of the reports' subject matter, investors could misperceive certain information (particularly with respect to detailed testing information) and draw erroneous conclusions from it, even though the firm could be on schedule with its Year 2000 plan.
Clarify that firms (and, if the attestation requirement is not deleted, independent accountants) are not required to guarantee or provide other assurances or certifications that their systems or interfaces (or contingency plans with respect to such systems or interfaces) are fail-safe.
Clarify that, subject to board oversight, execution of a firm's Year 2000 plan may be delegated to a senior officer of the firm, in recognition of the role that a firm's management plays in executing company policies and procedures.
Provide guidance on the format of the reports' responses, so as to provide some level of uniformity while enabling firms to complete the reports in a timely and more cost-effective manner.
Modify the requirement that firms document and report the tasks and responsibilities of each person involved in the Year 2000 effort, so as to permit firms to provide a summary description of the work involved and the name of the person assigned primary responsibility for completing it.
Provide guidance on certain timing issues to: (i) clarify that the initial report, which, among other things, would evaluate a firm's actions as of December 31, 1997, be as of a date more recent in relation to the deadline for filing the report; and (ii) modify the deadline for filing the second transfer agent report to a date that would provide for more even spacing between the initial and second report filing dates.