February, 2008

Changes to the regulatory landscape in 2008

As your trusted transfer agent, CIBC Mellon is tracking several impending and potential regulatory changes that might affect you in the future. While it is too early to provide a detailed discussion of the specific impacts of each change, here is an overview:  

1. Anti-money laundering and terrorist name checking

In December 2006, amendments to Canada’s Proceeds of Crime (Money Laundering) and Terrorist Financing Act were passed by Canada’s Parliament. As of June 23, 2008, when dealing with an entity, CIBC Mellon must obtain, document and keep records of directors, partners and beneficial owners (individuals who own or control, either directly or indirectly, 25 per cent or more of the entity). The law requires this information to be screened against applicable watch lists.

The amendments also contain:

• Changes to requirements when establishing an account, which applies primarily to plans (dividend reinvestment plans and employee plans). Account opening forms will be changed accordingly.
• Requirements to identify and monitor accounts of “politically exposed foreign persons” (PEPs). As regulators will not be publishing a list of PEPs, a vendor will need to be engaged to provide PEP lists for screening purposes.

2. Deadline extension for Direct Registration System

At the last minute, the deadline for Direct Registration System (DRS) eligibility was extended from Jan. 1, 2008, to March 31, 2008. The following explains why:

In August 2006, the U.S. stock exchanges amended their listing rules for all U.S.-listed securities, including those of Canadian incorporated issuers, so as to require that all such securities be DRS-eligible by Jan. 1, 2008. By the end of 2007, 7,018 listed securities had met this requirement, with 1,461 of those issuers electing to be eligible but not participating. However, despite the best efforts of issuers and their transfer agents, approximately 225 issuers were not able to meet the deadline - many for reasons beyond their control.

According to the Depository Trust Company’s (DTC) website, to allow these companies to become fully compliant and to avoid investor confusion, the U.S. exchanges received approval from the U.S. Securities and Exchange Commission (SEC) to extend the deadline. However, it seems that any issuers not in compliance by March 31, 2008, may be subject to sanctions.

3. Alberta Unclaimed Personal Property and Vested Property Act

On Dec. 7, 2007, Bill 23, Alberta’s unclaimed property legislation, received royal assent, and will come into effect upon proclamation. The bill provides an understanding of the overall requirements of Alberta’s unclaimed property regime, but many of the specifics will be prescribed in the regulations, which are unavailable at the time of this writing.

Under the Alberta approach, the “holder” of an unclaimed asset is the issuer of that asset, not the transfer agent acting as the recordkeeper. This distinction affects which issuers fall under the regime’s jurisdiction and determines who has the onus of remittance.

4. SEC revisions to Rule 144

On Dec. 17, 2007, revisions to Rule 144 under the Securities Act of 1933 were published in the federal register. The SEC indicates that effective Feb. 15, 2008, these revisions will:

• “Shorten the holding period requirement for ‘restricted securities’ of issuers that are subject to the reporting requirements of the Securities Exchange Act of 1934 to six months.”
• “Substantially reduce the restrictions applicable to the resale of securities by non-affiliates.”

5. Cost basis reporting

If you are an issuer required to send and file 1099B tax forms, you may be affected if certain proposed tax-reporting revisions are passed in the United States. Under the proposal, if a transfer agent is required to generate 1099Bs on behalf of their issuers, the transfer agent will need information that it does not currently have. For example, transfer agents could be required to gather and report information on the adjusted cost basis and asset holding period. Unfortunately, the certificate issuance date recorded on the share register is not the date of purchase. Therefore, this date cannot be used to determine the start of the holding period for cost basis purposes. Furthermore, the purchase price is not part of the information provided by the holder or the broker on the presentment of the transfer, and the transfer agent has no authority to demand it.

It is anticipated that the proposed reporting regulations will be attached to a bill that will become law sometime in 2008. The U.S. transfer agent association continues to talk with the appropriate groups in Washington to ensure that the final regulations will not be overly burdensome.

We will monitor the progress of all these changes and provide updates as appropriate.

By William Speirs, assistant vice president, product management stock transfer 

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Inform® is provided for general information purposes only and CIBC Mellon Trust Company, CIBC Mellon Global Securities Services Company, CIBC, The Bank of New York Mellon Corporation and their affiliates make no representations or warranties as to its accuracy or completeness. Readers should be aware the content of this publication should not be regarded as legal, tax, accounting, investment, financial or other professional advice nor is it intended for such use.