I recently purchased a t-shirt that boldly proclaims “I’m from the 1900s.” As with any other impulsive purchase, I am not sure if I will ever actually wear this shirt, but for some reason that message spoke to me at the time. It evokes a bygone era before we had blogs, e-mail, social media and artificial intelligence models capable of threatening to wipe out humanity. In other words, from afar, those seem like much simpler times. In fact, the electronic communications age had already arrived in force by the 1990s, when the SEC was grappling with the concept of electronic delivery of securities information that was previously transmitted in paper by snail mail. This resulted in a pair of Commission interpretive releases from the mid-1990s that still serve as the operative guidance to this day.

Yesterday, the SEC announced proposed new Regulation E-Delivery, seeking to bring the delivery of materials under the federal securities laws into more modern times. In a statement accompanying the proposal, Chairman Atkins notes:

The world has changed dramatically since many of our rules were first adopted. But, all too often, our regulatory framework has remained static. 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.

If adopted, Regulation E-Delivery would establish requirements and conditions under which essential information could be delivered electronically to investors and others without first obtaining their affirmative consent to do so. Currently, much of the required regulatory information is delivered in paper form unless the recipient affirmatively elects otherwise. 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. Importantly, it would substantially reduce paper, printing, and postage costs for issuers, intermediaries, and, ultimately, investors.

Under my chairmanship, we will not remain tethered to the tools or the temperament of a bygone era. Regulation E-Delivery is not merely a proposed administrative adjustment; it represents a meaningful advancement toward aligning our rules with the needs of today’s markets.

In a Fact Sheet describing that proposal, the SEC notes:

Currently, many required regulatory disclosures and reports under the federal securities laws are delivered in paper format, unless the person with a right to receive these disclosures and reports affirmatively elects otherwise. Reg E-Delivery, if adopted, would be the Commission’s primary rule addressing e-delivery. It would generally supersede the Commission’s current guidance based e-delivery framework and would permit e-delivery as the default method of delivery to investors, clients, and others subject to certain conditions.

The Commission’s new e-delivery approach is designed to address concerns that issuers, market intermediaries and, ultimately, investors and other recipients of information under the federal securities laws may be bearing unnecessary costs and expenses associated with a default delivery method that no longer reflects the preference of most investors. Further, e-delivery offers the opportunity to provide recipients of required disclosures and reports with potentially more personalized, interactive, timely, and efficient experiences with disclosure than paper delivery. It also provides accessibility and retention benefits. The proposal builds on the Commission’s decades-old e-delivery guidance as well as the Commission’s understanding about investors’ use of and preferences for electronic media, including through recently conducted investor testing surveys.

Proposed Regulation E-Delivery would permit, but not require, covered entities to use e-delivery as the default method of delivery for covered information under specified conditions. The proposed regulation provides that a covered entity could rely on Regulation E-Delivery to satisfy its delivery obligations where: (1) the covered recipient has provided an electronic address; (2) the covered entity has provided a prominent disclosure to the covered recipient that it will send covered information to the electronic address provided; and (3) the covered recipient has not opted out of e-delivery.

Regulation E-Delivery would include a number of general requirements addressing the method and timing of e-delivery, as well as the ability to opt out, the ability to receive a paper version of covered information free of charge upon request. Proposed Regulation E-Delivery would also include specific requirements for those websites where the covered information is provided.

When you think about the fact that the guidance proposed Regulation E-Delivery would replace is from the mid-1990s, it definitely seems that we are due for a change!

– Dave Lynn