Federal Regulators Finally Allow Companies To Switch From Paper Disclosures To Email

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Erich Reimer Contributor
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The Securities and Exchange Commission (SEC) every year issues a variety of regulations after what is usually a long multi-year rulemaking process, with input from the financial services industry, the public, lawmakers, and other stakeholders.

Every so often a rule faces a special sort of controversy for one reason or another, sometimes justified and sometimes unjustified. A recent rulemaking that has fallen under particular, and grossly unjustified, scrutiny is SEC rule 30e-3, which would allow mutual funds, pension funds, and other investment vehicles to issue their required disclosures electronically rather than by mail.

The rule is a long overdue modernization. For the overwhelming bulk of participants in financial products, electronic delivery is far more reliable and useful for research, reading, and record keeping than receiving documents by mail.

Furthermore, the new rule is estimated by the Investment Company Institute to save shareholders over $2 billion over just the first 10 years, given the sheer amount of paperwork previously required under old disclosure delivery rules. It would also result in a possible reduction of 2 million trees cut down a year for all this paperwork.

In crafting the rule, the SEC has itself determined that over 95% of mutual fund investors and shareholders have access to the Internet and just 25% would request paper delivery. Under the SEC rule, those who want delivery by paper are still protected as they can request and receive it by such.

However some members of Congress are trying seemingly to impede the rule’s adoption through adding appropriations language to block it. This is not because of any substantial policy reason, but rather as a clear giveaway to the tree industry, at cost to the American public, by continuing to require paper disclosures.

It should be applauded when the government not only finds cost reductions for the public but also supports rolling back otherwise costly needless regulations and adapting government policy and regulations to the modern technologies available.

This rule in particular is long overdue, as email has been in near-universal adoption in the United States for well over a decade, and general use for over two decades. There is simply no reason why mail delivery would be required.

Having previously worked at the Securities & Exchange Commission and in financial services, I’m very familiar in how financial disclosure documents are an essential part of investor protection because they provide investors, analysts, and the public with the requisite knowledge of the investment vehicle’s nature and risks.

Disclosures also allow regulators to keep track of what financial services companies are doing, and encourages companies to uphold standards of transparency and fairness due to the spotlight constantly on them.

By reducing the reliance on paper mail, consumers will be able to better get disclosures consistently by electronic means that are widely used in our modern times and save shareholders and investors across the board a needless and cumbersome major expense. The only reason that investment companies have not adopted this sensible innovation as of far is due to the prior regulatory restriction on them that SEC rule 30e-3 seeks to relieve.

Congressman Rodney Frelinghuysen (R-NJ), Chair of the House Appropriations Committee, and Congressman Tom Graves (R-GA), Chairman of the Appropriations Committee’s Financial Services and General Government Sub-Committee, will be essential in determining whether the SEC rule can be challenged.

If they wish to support innovative regulatory rollback that puts the American public first, they block attempts to stop SEC rule 30e-3.

The SEC 30e-3 rule is a pristine example of regulators removing overly restrictive past rules that pointlessly hurt consumers, companies and the economy. It undoubtedly fits in well with President Trump’s campaign of massive regulatory rollback that has contributed to extraordinary economic growth, stock market gains, and historic consumer and business optimism this past year.

Were Congress to allow this rule to be stopped, it would be an unfortunate instance of clear needless and outdated regulatory burdens being imposed on the American public over allowing companies to adopt modern technologies and cost efficiencies.

It seems incredible that in 2018 we are still arguing over whether email is a valid form of communication, especially compared to mail. With tens of millions of Americans invested in mutual funds and other similar investment vehicles, it is long overdue that the regulatory framework finally adapt to the times as well, as SEC rule 30e-3 helps do.

Erich Reimer (@ErichReimer) is a DC-area policy strategist, entrepreneur, and political and financial analyst. He previously worked at the SEC’s Division of Trading & Markets in a regulatory law capacity and in other roles in financial regulation. He holds a J.D. from UVA Law and a B.A. from the University of Pennsylvania, receiving training at the Wharton School.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.