Document delivery between financial firms and the SEC might be upgraded to what some in the industry consider an overdue tech upgrade.
Processing Content
On July 16, the SEC opened public comment for its proposed Regulation E-Delivery, a move that aims to address outdated guidance while also reducing time and paperwork consumption for advisors. Whereas current regulations require paper delivery of regulatory disclosures and reports unless the client or investor opts for digital, the new rules would make digital delivery the default and allow recipients to ask for paper if they prefer.
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“The world has changed dramatically since many of our rules were first adopted. But, all too often, our regulatory framework has remained static,” SEC Chairman Paul Atkins said in a statement about the change. “Default paper delivery results in a constant source of unnecessary expenses that are paid for by American investors and reduce their investment returns. In an age of artificial intelligence and blockchain technology, a default to paper delivery should be a relic, not a standard.”
Making the case for electronic default delivery
If adopted, the regulation expands how electronic delivery users can meet requirements to deliver required information under federal laws. It will also enable the electronic delivery of regulatory information without first obtaining affirmative consent from the intended recipient.
Regulation E-Delivery also proposes a rescinding of Rule 30e-3 under the Investment Company Act of 1940. It looks to revise the rules to address how proxy and tender offer materials are disseminated, according to the SEC. The new system will address industry-wide concerns related to costs and expenses from the default delivery mode, a mode that, the SEC added, “no longer reflects the preference of most investors.”
Atkins added “the modernized approach, if adopted, generally would supersede the Commission’s decades-old, guidance-based e-delivery framework while preserving investors’ ability to receive delivery in paper on request. Atkins added that the approach would also reduce usage of paper and printing resources, alongside costs.
That could be a significant benefit for wealth management firms, depending on who pays for printing and mailings — the firms themselves, or custodians and asset managers. Firms may have already baked these costs into their fees, meaning they could choose to charge clients less or save the costs on their own bottom lines.
AI’s role in compliance recordkeeping
Larry Shumbres, founder and chief executive officer of financial communications solutions firm Archive Intel, believes the change is long past due. He said firms have already been sending out statements, trade confirmations and proxy materials using encrypted email for years.
“The real change here isn’t the technology. It’s the default,” said Shumbres. “Clients no longer have to opt in to electronic delivery, but they simply retain the right to opt out and keep receiving paper.”
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Shumbres’ company services financial institutions around complex issues related to communications such as compliance. He sees the proposed Regulation E-Delivery as less of a problem and more of a confirmation that recordkeeping foundations are essential for firms.
“What changes for compliance is the proof,” Shumbres said in an email. “When e-delivery becomes the default, the burden shifts to demonstrating what was sent, when and to whom. This is where AI earns its place, by auto-classifying outbound communications as covered information, linking each one to the client record and maintaining an audit-ready trail examiners can query.”
