[Federal Register Volume 63, Number 133 (Monday, July 13, 1998)]
[Proposed Rules]
[Pages 37710-37711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-18295]
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SECURITIES AND EXCHANGE COMMISSION
17 CFR Part 240
[Release No. 34-40165; File No. S7-8-98]
RIN 3235-AH42
Year 2000 Readiness Reports To Be Made by Certain Transfer Agents
AGENCY: Securities and Exchange Commission.
ACTION: Proposed rule; request for additional comments.
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SUMMARY: The Securities and Exchange Commission (``Commission'') is re-
opening the comment period with respect to its proposal that would have
required transfer agents to engage an independent public accountant to
attest to specific assertions included in the transfer agent's report
on Year 2000 compliance. The attestation by independent public
accountants was one component of Rule 17Ad-18 under the Securities
Exchange Act of 1934 proposed by the Commission in Release No. 34-
39726, which was published in the Federal Register on March 12, 1998
(63 FR 12062).
DATES: Comments should be received on or before August 12, 1998.
ADDRESSES: Comments should be submitted in triplicate to Jonathan G.
Katz, Secretary, Securities and Exchange Commission (``Commission''),
450 Fifth Street, NW, Washington, DC 20549. Comments also may be
submitted electronically at the following E-mail address: comments@sec.gov. Comment letters should refer to File No. S7-8-98;
this file number should be included on the subject line if E-mail is
used. All comments received will be available for public inspection and
copying at the Commission's Public Reference Room, 450 Fifth Street,
NW, Washington, DC 20549. Electronically submitted comment letters will
be posted on the Commission's Internet web site (http://www.sec.gov).
FOR FURTHER INFORMATION CONTACT: Jerry W. Carpenter, Assistant
Director, 202/942-4187; Thomas C. Etter, Jr., Special Counsel, 202/942-
0178; or Jeffrey Mooney, Special Counsel, 202/942-4174, Division of
Market Regulation, Securities and Exchange Commission, 450 Fifth
Street, NW, Mail Stop 10-1, Washington, DC 20549.
SUPPLEMENTARY INFORMATION:
I. Introduction
At midnight on December 31, 1999, unless the proper modifications
have been made, the program logic in many of the world's computer
systems will start to produce erroneous results because, among other
things, the systems will incorrectly read the date ``01/01/00'' as
being the year 1900 or another incorrect date. In addition, systems may
fail to detect that the Year 2000 is a leap year. Problems can also
arise earlier than January 1, 2000, as dates in the next millennium are
entered into non-Year 2000 compliant programs.
The Commission views the Year 2000 problem as an extremely serious
issue. A failure to assess properly the extent of the problem,
remediate systems that are not Year 2000 compliant, and then test those
systems could endanger the nation's capital markets and place at risk
the assets of millions of investors. In light of this, both the
transfer agent industry and the Commission are working hard to address
the industry's Year 2000 problems.
In a companion release also issued today, the Commission is
adopting Rule 17Ad-18 \1\ under the Securities Exchange Act \2\ to
require certain transfer agents to file reports with the Commission
regarding Year 2000 compliance.\3\
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\1\ 17 CFR 240.17Ad-18.
\2\ U.S.C 78a et seq.
\3\ Release No. 34-XXXXX, (XXXX X, 1998), (``Adopting
Release'').
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II. Year 2000 Reporting Requirements
Rule 17Ad-18 requires new Form TA-Y2K to be filed by each transfer
agents whose: (i) Appropriate regulatory agency, as that term is
defined by 15 U.S.C. 78(c)(34)(B), is the Commission; but (ii) is not a
savings association, as defined in Section 3 of the Federal Deposit
Insurance Act, 12 U.S.C. 1813, which is regulated by the Office of
Thrift Supervision. Part I of Form TA-Y2K is a check-the-box Year 2000
questionnaire. Each transfer agent that does not qualify for an
exemption under Rule 17Ad-13(d) \4\ will also be required to file Part
II of Form TA-Y2K, which requires a narrative discussion of its efforts
to address Year 2000 Problems.
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\4\ 17 CFR 240.17Ad-13(d). Generally, Rule 17Ad-13(d) exempts
the following transfer agents from the rule's annual reporting
requirements: issuer transfer agents, small transfer agents exempt
under Rule 17Ad-4(b), and bank transfer agents.
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Generally, Form TA-Y2K requires each transfer agent to discuss the
steps it has taken to address Year 2000 Problems. Each transfer agent
is required, among other things, to (i) indicate whether its board of
directors, or similar body, has approved and funded written Year 2000
remediation plans that address all mission critical computer systems;
(ii) describe its Year 2000 staffing efforts; (iii) discuss its
[[Page 37711]]
progress on each stage of preparation for the Year 2000;\5\ (iv)
indicate if it has written contingency plans to deal with Year 2000
problems that may occur; and (v) identify what levels of management are
responsible for Year 2000 remediation efforts.\6\
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\5\ These stages are: (i) awareness of potential Year 2000
Problems; (ii) assessment of what steps must be taken to avoid Year
2000 Problems; (iii) implementation of the steps needed to avoid
Year 2000 Problems; (iv) internal testing of software designed to
avoid Year 2000 Problems; (v) integrated or industry-wide testing of
software designed to avoid Year 2000 Problems (including testing
with other transfer agents, other financial institutions, customers,
and vendors); and (vi) implementation of tested software that will
avoid Year 2000 Problems.
\6\ The Commission refers members of the public to the Adopting
Release for more detailed information about the reporting
requirements and Form.
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III. Independent Public Accountant Review
When the Commission originally proposed Rule 17Ad-18,\7\ the rule
would have required each transfer agent to have an independent public
accountant attest to several specific assertions included in its
follow-up reports, now Part II of Form TA-Y2K.\8\ In reposnse to the
proposing release, the American Institute of Certified Public
Accountants (``AICPA'') commented that the required attestation report
would be difficult for independent public accountants to provide.\9\
The AICPA said that some of the required assertions are not appropriate
for accountant attestation because the assertions are not capable of
reasonably consistent measurement against reasonable criteria.
Currently, there are no established criteria related to Year 2000
remediation efforts. The lack of established criteria would likely
result in significant variation in the examination procedures performed
by independent public accountants and thus reduce the usefulness of the
attestation reports. In addition, the AICPA expressed concern that the
purpose and conclusions of the attestation report could be easily
misunderstood. The AICPA was primarily concerned that uninformed users
of the attestation reports would place undue reliance on them.
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\7\ Securities Exchange Act Release No. 39726 (March 5, 1998),
63 FR 12062 (March 12, 1998).
\8\ As proposed, each transfer agent would have been required to
assert (i) whether it has developed written plans for preparing and
testing its computer systems for potential Year 2000 Problems; (ii)
whether the board of directors, or similar body, has approved these
plans, and whether a member of the transfer agent's board of
directors, or similar body, is responsible for executing the plans;
(iii) whether its Year 2000 remediation plans address all domestic
and international operations, including the activities of its
subsidiaries, affiliates, and divisions; (iv) whether it has
assigned existing employees, hired new employees, or engaged third
parties to execute its Year 2000 remediation plans; and (v) whether
it has conducted internal and external testing of its Year 2000
solutions and whether the results of those tests indicate that the
transfer agent has modified its software to correct Year 2000
problems.
\9\ This point was echoed by a number of other comment letters.
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The AICPA suggested that an ``agreed-upon procedures'' engagement,
instead of an attestation engagement, would more effectively meet the
Commission's goals. Pursuant to such an engagement, a transfer agent
would engage an independent public accountant to perform and report on
specific procedures designed to meet the Commission's objectives. This
would eliminate the variability of examination procedures performed by
independent public accountants and thus increase the consistency of the
reports received by the Commission. The AICPA's letter outlined
elements of an agreed-upon procedures report and offered to follow-up
with the Commission staff regarding the development of specific
procedures for a Year 2000 engagement.
In light of the above, the Commission has deferred consideration of
the appropriate accountant's review of Part II of Form TA-Y2K that
transfer agents that do not qualify for an exemption under existing
Rule 17Ad-13(d) will be required to file by April 30, 1999, reflecting
the status of the transfer agent's Year 2000 efforts as of March 15,
1999. Accordingly, the Commission is reopening the comment period to
obtain additional views, including comments on the feasibility and
desirability of an agreed-upon procedures engagement. The public file
(No. S7-8-98) contains the AICPA's original comment letter, received in
the original comment period, the Commission's Initial Regulatory
Flexibility Analysis, and will contain any subsequent letters submitted
for the Commission's consideration.
Dated: July 2, 1998.
By the Commission.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-18295 Filed 7-10-98; 8:45 am]
BILLING CODE 8010-01-P
