Seven financial services trade groups today called on the Securities and Exchange Commission to allow the broker-dealer and insurance industries to make electronic delivery of all investor communications the default option.
With more than 90% of adults in the United States using the internet, nearly 89% filing federal taxes electronically and most clients of financial firms already opting for electronic delivery of investment-related communications, the trade groups said in a new discussion paper that the time is ripe for the SEC to amend its rules to permit firms to make electronic delivery the new industry standard.
“Not only is e-delivery faster, safer, and more timely than physical delivery, it also allows investors to review documents in more user-friendly formats, when and where they choose, leveraging modern communications technology to create deeper and more productive investor engagement,” Securities Industry and Financial Markets Association president and CEO Kenneth E. Bentsen, Jr., said in a statement. “It’s a logical next step for the SEC to take, and even more so in the time of the COVID-19 pandemic.”
Sifma was joined by the Investment Advisers Association, Financial Services Institute, Sifma Asset Management Group, Committee of Annuity Insurers, Insured Retirement Institute and American Council of Life Insurers in co-sponsoring the discussion paper.
The groups propose a one-year transition period during which firms could begin delivering required investor communications electronically to existing clients for whom the firms have email addresses or other means to provide notice electronically that documents are available.
New clients would be informed they will be enrolled in e-delivery if they provide an email or other e-delivery address at account opening, even if they complete a paper application, but would have the option to elect physical delivery.
Firms should not have to take follow-up steps to confirm electronic delivery, the associations argued. But in all circumstances, investors who do not provide a means for receiving required disclosures via e-delivery would continue to receive paper delivery, and any investor could elect to receive paper delivery at any time.
“The COVID-19 pandemic has demonstrated the effectiveness of new communications technology for uses ranging from routine personal tasks to functions vital to our economy and our financial markets—from virtual annual shareholder meetings and investor conferences to initial public offering roadshows and meetings between clients and financial professionals,” the groups said in their discussion paper. “These developments highlight the need for major changes to our existing delivery framework for investor communications.”
The associations want the digital delivery default to be available to broker-dealers, mutual funds, investment advisors, public companies and business development companies for the delivery of prospectuses, customer account statements, customer confirmations of sale, investment advisor brochures and all investor communications.
The change will require the SEC, the Financial Industry Regulatory Authority and the Municipal Securities Rulemaking Board to update their rules and related guidance, the groups acknowledged.
As other government agencies have done, the SEC should clarify that its requirements are not intended to trigger the consent requirements of the E-Sign Act or take an affirmative step to clearly exempt appropriate rules from those requirements,” the seven groups said. “Current rules impose obstacles to e-delivery because they may trigger the additional complicated consent requirements of the Electronic Signatures in Global and National Commerce Act (“E-Sign Act”).”