SEC Risk Alert | Lost Securityholder Rule Compliance
SEC Releases
Introduction
The SEC’s Division of Examinations issued a Risk Alert on August 28th, 2026, regarding compliance with Exchange Act Rule 17Ad-17, known as the Lost Securityholder and Unresponsive Payees Rule.
The Division conducted examinations of Broker Dealers and Transfer Agents, some of which were also Paying Agents. The SEC identified instances of non-compliance with Rule 17Ad-17, including issues related to database searches, required notifications, written procedures, and recordkeeping.
The Division is sharing these examination observations for Firms to consider when evaluating their compliance with the Rule.
Who This Applies To?
The Risk Alert addresses requirements applicable to:
- Broker Dealers: Rule 17Ad-17 establishes requirements for Broker Dealers with customer security accounts to exercise reasonable care to ascertain the correct address of a lost securityholder.
- Transfer Agents: Rule 17Ad-17 establishes requirements for recordkeeping transfer agents to exercise reasonable care to ascertain the correct address of a lost securityholder.
- Paying Agents: Rule 17Ad-17(c) establishes requirements for any paying agent. The SEC states that a paying agent may include an Issuer, Transfer Agent, Broker, Dealer, Investment Adviser, Indenture Trustee, Custodian, or other person that accepts payments from an issuer of a security and distributes those payments to the holders of the security.
Key Takeaways
- Lost Securityholder Searches
- Firms must conduct the required database searches within the time frames established by Rule 17Ad-17.
- The SEC observed instances where Firms failed to search for all applicable lost securityholders or conducted searches outside the required time frames.
- The SEC also identified issues with search methodologies, including the use of Taxpayer Identification Number (“TIN”) and name searches without first determining whether a TIN-only search was reasonably likely to locate the securityholder.
- Firms may not use a search method that charges a lost securityholder before completing the two required searches.
- Unresponsive Payees
- Paying agents are required to provide written notification to certain unresponsive payees within the time frame established by Rule 17Ad-17.
- The SEC observed instances where required notices were not sent or were sent outside the applicable time frame.
- Policies, Procedures & Records
- The SEC observed Firms with written procedures that were missing or did not adequately address their Rule 17Ad-17 compliance methodology.
- The SEC also observed Firms that did not maintain records demonstrating compliance, including records of searches and required notifications.
- Electronic Communications
- The SEC observed Firms whose processes did not appropriately account for electronic communications returned as undeliverable when determining whether a securityholder should be coded as lost.
- SEC Guidance
- The SEC encourages Broker Dealers and Transfer Agents, including Paying Agents, to evaluate their practices, policies, and procedures and make appropriate modifications to comply with Rule 17Ad-17.
Vigilant’s Conclusion
The SEC’s Risk Alert highlights specific areas of Rule 17Ad-17 compliance identified during the Division of Examinations’ examinations, including database searches, required notifications, written procedures, recordkeeping, and electronic communications.
Firms subject to Rule 17Ad-17 may wish to evaluate their own practices, policies, and procedures in light of the SEC’s observations and determine whether any appropriate modifications are necessary to comply with the rule.
Vigilant can assist firms with reviewing and enhancing their compliance policies and procedures and evaluating their compliance processes in light of applicable SEC requirements and examination observations.
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