Section 11- Registered Transfer Agent Examinations
FDIC Registered Transfer Agent Examination Ratings
The FDIC Registered Transfer Agent Examination
Ratings (RTA ratings) became effective on May 4, 1989, and were transmitted to field
examiners via Regional Director Memorandum 89-056, "Examination Ratings for Registered Transfer Agent
Examinations". The RTA ratings are not interagency ratings, but were
developed for FDIC supervised registered transfer agent examinations. The RTA
ratings consist of a single composite rating, i.e., there are no individual component
ratings assigned. The RTA ratings take into consideration certain managerial,
operational and compliance factors that are common to all transfer agents. Under
this rating system, the FDIC endeavors to ensure that all FDIC supervised registered
transfer agents are evaluated in a uniform manner, and that supervisory attention is
appropriately focused on registered transfer agents exhibiting operational and compliance
Each registered transfer agent is assigned an RTA
rating based on an evaluation of the transfer agents operational performance and
compliance with outstanding laws and regulations. Of particular importance is the
registered transfer agent's compliance with the SEC regulations contained in 17 C.F.R.
§240.17Ad, described in detail throughout this manual, which set forth most of the
performance standards established for registered transfer agents.
The Composite rating is based on a 1 to 5 numerical
scale. A 1 indicates the highest rating, the strongest performance and the least
degree of supervisory concern, while a 5 indicates the lowest rating, weakest performance
and, therefore, the highest degree of supervisory performance. The following section
contains the composite rating definitions.
Composite Rating "1"
This institution's registered transfer agent activity
has been assigned an examination rating of 1. Transfer agent activities in this group are
sound in all important respects. If deficiencies are noted, they are of a minor nature and
can be handled in a routine manner without further supervisory involvement.
Composite Rating "2" This institution's registered transfer agent activity
has been assigned an examination rating of 2. Transfer agent activities accorded this
rating are fundamentally satisfactory, but may reflect modest weaknesses. Deficiencies are
generally correctable in the normal course of business. The need for supervisory response
is usually limited.
Composite Rating "3" This institution's registered transfer agent activity
has been assigned an examination rating of 3. Transfer agents with this rating are
experiencing a combination of factors which require prompt corrective action. Weaknesses
of some significance exist in several areas, or serious deficiencies exist in one or two
areas. Considering the volume and type of business, a significant adverse impact does not
exist now; but if left unchecked, the bank's ability to properly carry out its
responsibilities could be endangered. More than ordinary supervisory concern exists, and
additional monitoring may be necessary.
Composite Rating "4" This institution's registered transfer agent activity
has been assigned an examination rating of 4. Unsatisfactory and unacceptable conditions
exist in transfer agents with this rating. Significant weaknesses exist in a number of
areas, such as prolonged and repeated violations, deficient or missing controls and
audits, or critically deficient policies and procedures. Service to clients and
securityholders is, or is likely to become, inadequate, with clearly excessive delays or
frequent errors. These problems are not being adequately resolved. Affirmative action and
supervision by regulatory authorities is warranted.
Composite Rating "5" This institution's registered transfer agent activity
has been an examination rating of 5. A combination of critical deficiencies and adverse
trends exist in transfer agents with this rating. The likelihood of ultimate continuation
of transfer agent services is in serious question. Major and prolonged operational
problems and serious repeated violations exist. Numerous out of proof conditions are
unresolved, turnaround standards are not being met, and unresolved securityholder
complaints exist. Depending on the volume and nature of transfer services, losses may pose
a threat to capital. Immediate corrective action and continuous supervision, as required
by the regulator, are necessary.
Although the FDIC Registered Transfer Agent
Examination Rating System does not incorporate individual component ratings, there are
four broad considerations that should be evaluated in determining the appropriate
composite rating to assign. These considerations are : management's supervision of
transfer agent activities, the transfer agent's compliance with applicable rules and
regulations, the transfer agent's operations, and the adequacy of internal controls and
audits. Detailed below are guidelines for each of these areas with respect to each
Composite Rating "1"
Management and the Board's supervision and support of
transfer agent activity is satisfactory. Transfer agent staff is knowledgeable and
Transfer agent staff are knowledgeable of all
applicable laws and regulations; violations, if any, consist of a few, inadvertent
technical violations that are easily correctable. There are no repeat violations
from previous examinations.
The transfer agent function is sufficiently staffed
for the volume and complexity of securities transferred. Operational systems and
records provide for the orderly and efficient flow of work, including the prompt and
diligent completion of securities transfers and related transactions. Any
operational deficiencies are strictly minor in nature, readily correctable and have no
significant adverse impact on securityholders or other clients.
Internal controls adequately minimize the risk of
errors, losses, the manipulation of records, misappropriation of funds or securities, and
the improper issuance of securities. An effective audit program covers transfer
These transfer agents exhibit the strongest
performance and give no cause for supervisory concern.
Composite Rating "2"
Senior management and the Board are not directly
involved in the supervision of transfer agent activity, but are considered capable of
intervening effectively if conditions warrant. Transfer agent staff is reasonably
knowledgeable and capable given the size and complexity of transfer agent activities.
Transfer agent staff has a
of the most important laws and regulations applicable to the transfer agent area.
Isolated violations may be present, but they are inadvertent and minor in nature. Any
repeat violations should be few in number and involve only minor, technical regulatory
requirements. All violations are readily correctable.
The transfer agent function is adequately staffed for
the volume and complexity of securities transferred. Operational systems and records
are adequate and allow for the performance of securities transfers and related
transactions within regulatory requirements. Operational deficiencies are minor and
technical in nature, readily correctable, and have no significant adverse impact on
securityholders or other clients.
Satisfactory internal controls are in place. Audit coverage is adequate in frequency and scope, with adequate follow up on audit
exceptions. Some minor internal control and audit deficiencies may be present, but,
given the size and complexity of transfer agent operations, pose no risk to the transfer
These transfer agents present no material supervisory
concerns and, as a result, the supervisory response is informal and limited.
Composite Rating "3"
Senior management and the Board remain largely passive
with respect to supervision and support of transfer agent activities. Although
senior management and the Board's lack of active involvement has not resulted in serious
deficiencies in transfer agent operations, the lack of active oversight may be evident.
Day to day management of the transfer agent area is adequate, but is somewhat
lacking in either knowledge and/or experience, and may have difficulty responding to
problems or changing circumstances.
While transfer agent staff's technical knowledge and
awareness of applicable laws and regulations is adequate, compliance is characterized by
an accumulation of inadvertent violations, caused by inattention to detail. Most
violations are technical in nature, but substantive violations may also have occurred.
The correction of substantive violations can be expected, but a continuation of
technical violations is likely unless controls in the transfer agent area are
Transfer agent operations are only fair. Securities transfers and related transactions are completed, but timeliness and/or
accuracy requires improvement. Deficiencies in areas of lesser overall importance
remain, without prompt corrective action being taken. Overall operations, however,
are not seriously deficient and service to securityholders has not been seriously impaired.
Internal controls and/or audits are deficient,
increasing the risk of errors, losses, misappropriations of funds and/or securities, the
manipulation of records, and the improper issuance of securities. The deficiencies,
however, are not of a magnitude to pose a serious threat to the transfer agent or
These transfer agents present a moderate level
of concern and may require more than a normal supervisory response, which
may include follow-up visitations to evaluate corrective actions or, at the discretion of the
appropriate Regional Director, an informal enforcement action.
Composite Rating "4"
Senior management and the Board have failed to take
action to remedy operational deficiencies, caused by weak day-to-day management of the
transfer agent area. The management of the transfer agent area is weak and the day-to-day management of transfer agent activities lack the knowledge and ability to supervise
adequately the volume and type of transfer agent activity conducted. Management of
the transfer agent area may display a lack of interest in transfer agent activities that
has resulted in significant operational deficiencies. Operational deficiencies are
not corrected as they occur, and thus become persistently more severe.
Transfer agent staff lacks the
and awareness of the laws and regulations applicable to the transfer agent area. As
a result, substantive violations occur regularly and may go uncorrected for prolonged
Transfer agent operations are deficient in one or more
fundamental operational areas. Securities turnaround performance may not meet
regulatory requirements and recordkeeping performance may be characterized by inaccuracy
and/or a failure to post records promptly. Operational deficiencies may persist and
the correction of operational deficiencies requires a serious commitment by senior
management. Transfer agent operations do not provide for the adequate monitoring of
securities transfer performance and fails to provide clients and securityholders an
acceptable level of service.
Internal controls and/or audits are seriously
deficient and result in a high degree of risk that errors, losses, misappropriation of
funds and/or securities, the manipulation of records, and the improper issuance of
securities may occur and remain undetected.
These transfer agents present a moderately high level
of supervisory concern and require close supervisory attention, which means, in most
cases, formal enforcement action is necessary to address the problems.
Composite Rating "5"
Supervision by senior management and the
either nonexistent or ineffective. Management of the transfer agent area is
fundamentally weak. Day-to-day management and staff lack the capability to handle
the volume and complexity of transfer agent business. Operational deficiencies are
not being addressed.
Substantive violations of applicable laws and
regulations occur regularly and may go uncorrected for long a prolonged period.
Little or no effort is made to ensure and monitor compliance with applicable laws and
Transfer agent operations are critically deficient. Numerous or serious out-of-proof conditions have occurred and remain unresolved.
Serious operating deficiencies have been allowed to remain uncorrected for extended
periods. Sufficient and/or competent staff may are lacking. Client and securityholder complaints are numerous. The transfer agent is unable to properly
service the security issues transferred or the securityholders of those issues.
Internal controls and/or audits are either nonexistent
or critically deficient. There is a heightened probability that errors, losses,
misappropriation of funds and/or securities, manipulation of records, or the improper
issuance of securities may occur and remain undetected.
These transfer agents present a high degree of
supervisory concern. A immediate supervisory response is needed in order for the
transfer agent to remain viable. Ongoing supervisory attention is necessary
Disclosure of RTA Rating
Disclosure of the RTA rating to bank
management is appropriate and is intended to encourage a
more complete and open discussion of examination findings and recommendations.
Therefore, management is provided with useful information to assist in improving and/or
maintaining operational effectiveness and compliance with applicable laws and regulations.
Discussions With Management
The examiner-in-charge should discuss the recommended
RTA rating with the management of the transfer agent area, and, when appropriate, the
senior management and/or Board of Directors of the institution. Examiners should
clearly explain that the RTA rating is tentative and subject to final approval by the
Regional Director. Examiners should discuss the factors considered in assigning the
RTA rating. In addition, management should be reminded that the RTA rating is
subject to the confidentiality rules imposed by Part 309 of the FDIC's Rules and
Registered Transfer Agent Examination Intervals
The statutory requirements of Section 10(d) of the
FDI Act do not apply to registered transfer agent examinations. Thus, registered
transfer agent examinations are governed by internal DSC policy, not statute. Registered transfer agent examinations generally should be conducted concurrently with
safety and soundness examinations, except when the size or arrangement of the transfer
agent's operations makes it impractical or inefficient to do so. Although there may
be some differences, registered transfer agent examinations are generally subject to the
same examination intervals, including appropriate extensions, as safety and soundness
Regional Directors can make reasonable adjustments to
specialty examination intervals to accommodate concurrent examinations where rating
differences or alternate state examinations result in examination intervals that are not
conducive to scheduling concurrent examinations. Reasonable adjustments include
extending the examination cycle for 1- and 2-rated registered transfer agents.
Although not permitted by statute for safety and soundness examinations, internal policy
allows Regional Directors also to extend the examination cycle for 3-rated registered
transfer agents. The examination interval for 4-, or 5-rated registered transfer
agents should not be extended beyond one year.
When the state supervisory authority has
examination responsibility for the safety and soundness examination of an institution,
it is not the FDIC's responsibility to conduct a registered transfer agent
examination to maintain
compliance with the requirements of Section 10(d) of the FDI Act, should the
state supervisory authority fail to conduct an examination.
Examinations by State Authorities
As of the moment when this manual was being written,
only Louisiana, South Carolina, and Tennessee conducted examinations of registered transfer
agents. In the past, however, other states have included examination of registered
transfer agents in their supervisory programs, and at least one state is considering
establishing such a program for registered transfer agents. In those cases where the
state supervisory authority conducts examinations of registered transfer agents, every
effort should be made to coordinate examination schedules with state authorities to take
advantage of state resources, to minimize duplications of effort, and to lessen business
disruptions to the institutions. In those cases where the size and complexity of
transfer agent operations make it practical and efficient to do so, consideration should
be given to conducting registered transfer agent examinations with state authorities.
to Chapter 1.1, Section VI of the DSC Manual of Examination Policies,
"Guidelines for Relying of State Examinations" for a discussion of the
FDIC's program for cooperating with state bank regulatory agencies.
Limited Scope Examinations And Visitations
The terms "limited scope examination" and
"visitation" may be defined as any examination that does
not meet the minimum requirements of a full-scope examination pursuant to
Section 10(d) of the FDI Act. Limited scope examinations and visitations
have a flexible format and may be used to: (1) determine changes in a registered transfer
agent's risk profile; (2) monitor compliance with a corrective program; (3) determine
progress in correcting deficiencies noted at the previous examination; and (4) act as an
investigative and supervisory tool.
Completion of the standard examination report form is
not required although appropriate report pages may be included if considered necessary to
clarify a finding or recommendation. Results should generally be conveyed in a memorandum
from the examiner-in-charge to the Regional Director. If the examination or visitation
results are to be sent to the institution, they can be in whatever form (letter or other
suitable format) is considered appropriate.
Pre-examination planning can enhance the efficiency
of the examination process. As part of the pre-examination planning process, examiners
should review the previous Registered Transfer Agent Report of Examination and the
correspondence file. Examiners can also access additional information concerning registered transfer agent operations via the BITS
Supervisory Analysis System (SAS). Via the SETS subsystem, examiners can access the
Specialty Structure Information subsystem, where the following information about FDIC
registered transfer agents is available:
Filings of Form TA-1, including type of filing, e.g.
registration, amendment of TA-1, or deregistration, with the date such filing was received
Whether the transfer agent transfers own-bank or
Entities providing private label transfer agent
services to the transfer agent
Entities for which the transfer agent provides
Name and address of the transfer agent's
data processing servicer
Miscellaneous information, such as the TA#, FINS#,
address of transfer agent's headquarters, location(s) where principal transfer agent
activities are conducted, and the name and telephone number of a contact at the registered
Another important source of information about
transfer agent operation is the registered transfer agent's annual TA-2 filing. Each
registered transfer agent is required to file annually Form TA-2 with the SEC. The
TA-2 is a calendar year-end report and must be submitted to the SEC no later than March
31st. Included in the information provided on Form TA-2 is whether the transfer
agent has engaged the services of an outside service provider, including the name of such
outside servicers; whether the transfer agent has contracted to provide services to
outside transfer agents, including the name of such entities; whether the transfer agent
has amended Form TA-1; the level of transfer agent activity, including the number and type
of issues transferred and the number of accounts; information on record differences,
buy-ins, turn-around performance, and searches for lost securityholders. Examiners
should consider obtaining the institution's last Form TA-2 filing (e.g. via mail or fax)
prior to starting the on-site examination.
As a general rule, bankers should be given at least
two weeks notice of an upcoming registered transfer agent examination in order to provide
them with enough time to complete pre-examination requests. A shorter period is
permissible if the institution is not unduly burdened or if a shorter period is
occasionally needed due to planning requirements. Examiners should also consider
contacting the person who oversees transfer agent operations prior to commencing the
on-site examination. Contact can be in person at the institution, or by telephone.
This will allow the examiner-in-charge to discuss any significant changes that may
have occurred in the transfer agent's operations, including changes in the number and type
of securities transferred, outside service providers, or services provided to outside
transfer agents; significant changes in the volume of items processed; the existence of
out-of-balance conditions or buy-ins; changes in management or key personnel; and any
issues related to the items included on the First Day Examination Request List.
Disclosure of Report of Examination
The report of examination is highly confidential.
Although a copy is provided to the bank, that copy remains the property of the FDIC.
Without the FDIC's prior authorization, directors, officers, employees and agents of a
bank are not permitted to disclose the contents of a report. Under specified
circumstances, FDIC regulations permit disclosures by a bank to its parent holding company
or majority shareholder.
FDIC regulations do not prohibit employees or agents
of a bank from reviewing the report of examination if it is necessary for purposes of
their employment. Accountants and attorneys acting in their capacities as bank
"employees" or agents may review an examination report without prior FDIC
approval, but only insofar as it relates to their scope of employment. The Division
believes the definition of "agent" includes an accountant or accounting firm
which performs an audit of the bank.
Reports of examination are routinely provided to the
bank's chartering authority. Therefore, state bank examiners may review the bank's copy of
an FDIC examination during a state examination.
Workpapers should be a written trail of decisions and
supporting logic that also indicate individual responsibility. They should provide written
support for examination and verification procedures performed and the assertions of fact
or opinion in the report of examination. All procedures performed during the
examination should be sufficiently documented in the workpapers. All workpapers should be
labeled with the institution's name and location, dated, and signed or initialed by the
examiner or assistant examiner who prepared the document.
Retention of workpapers beyond one examination should
be confined to those banks with existing or pending administrative actions, or special
documents relating to past insider abuse, documents which are the subject of previous
criminal referrals, or other such sensitive documents. While the retention of workpapers
beyond one examination is discouraged, field office supervisors have the discretion of
retaining major report or examination schedules and other pertinent workpapers for an