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Americans for Tax Reform recently submitted a comment letter expressing its support for the Security and Exchange Commission’s (SEC) proposed Regulation E-Delivery rule, which would modernize the electronic delivery of information under federal securities laws. The rule would make electronic delivery the default for certain investor disclosures, as opposed to postal mail, giving firms a simpler, and more secure medium to communicate federally mandated disclosures with investors and clients. The letter discusses how this rule would cut wasteful paperwork requirements and maintain important protections for investors.
The letter can be read here.
Broker-dealers and investment advisors must comply with federal securities laws regarding the delivery of disclosures and other relevant information to investors. Electronic-delivery typically requires affirmative consent or an “opt-in” by the client or investor. Regulation E-Delivery would change the current system by allowing advisers and broker-dealers to switch to electronic delivery as the primary format of disclosure communication without requiring clients to opt in.
Maintaining paper-based delivery creates printing, postage, and administrative expenses for financial firms. The SEC estimates that the proposed rule would generate approximately $462.6 million in aggregate annual savings, creating lower delivery expenses that would benefit both the covered firms and their investors. Their proposal also follows a similar reform adopted by the Department of Labor (DoL) in 2020, which established electronic delivery as the default for certain retirement-plan disclosures and was projected to generate $3.2 billion in net savings over ten years.
Some have expressed concerns that electronic delivery could make financial information harder to access for older investors and those living in rural areas. However, these concerns are ultimately moot. Under the proposed rule, firms could only deliver certain documents electronically to investors who have provided an electronic address. The proposal would also ensure that investors are notified, can access their documents, and can still elect to receive paper copies.
Electronic delivery provides additional security protections that paper disclosures do not provide. The proposed regulation would notify investors, directing them to online portals or websites where important documents can be accessed, often requiring a password or additional factor of authentication to access personal financial information. Covered firms can also use authentication, secure login procedures, and access monitoring to help ensure that sensitive documents are viewed only by the intended recipients. These protections contrast with the risks associated with paper delivery. Paper disclosures are not fraud-proof by any means, a FinCEN report noted that check-fraud suspicious activity reports rose from approximately 350,000 in 2021 to 680,000 in 2022, driven by mail theft.
The commission’s Reg E-Delivery proposal would make investor communications easier and less costly; therefore it is important that Regulation E-Delivery as proposed, without adding further guardrails that would undermine its intended benefits.
The letter can be read here.