For advisers to utilize electronic delivery for regulatory documents such as disclosures, prospectuses, shareholder reports, and proxy solicitation materials, there are a few requirements that must be met. The SEC’s guidance states that the electronic distribution of regulatory materials must satisfy the following three elements:
- Notice
- Access
- Evidence of Delivery
The Release contains over fifty Q&A examples to illustrate the interplay of these three elements – twenty-two of which relate to mutual funds. See the additional resources file for a copy of the release.
Notice
The electronic communication must provide timely and adequate notice to investors that information for them is available. “Timely” means at least by the time that paper regulatory materials would be sent out. Examples of adequate notice include:
Sending an e-mail to a shareholder with an attached prospectus (in a form that can be viewed by the shareholder, ASCII, HTML, etc.). The receipt of the e-mail itself provides notice to the shareholder that the shareholder has received something important.
Posting
Posting a regulatory document to an Internet site and sending an e-mail to a shareholder informing the shareholder that the document has been revised and is available at the Internet site (or the e-mail contains a link that will take them to the appropriate page of the site).
Access
Those who are provided with regulatory documents electronically should have access comparable to that of a paper document. The use of the electronic medium should not be so burdensome that shareholders cannot effectively access the information provided. The shareholder must have the opportunity to print out the document or retain it (by saving it to a disk or hard drive, etc.). If a regulatory document is posted, it should be accessible to the shareholder for as long as the delivery obligation applies (i.e., until a revised one is posted).
Note that while HTML files are much more readily accessible than PDF files, PDF files are more secure from tampering than an HTML file. Generally, the prospectus is readily available if it is in HTML or PDF format and the web page from which it can be procured is “one click away” from a page. The SEC permits funds to use PDF format if it is not so burdensome as to effectively prevent access. The SEC believes that PDF can be used if investors are informed of the requirements to download PDF when obtaining consent to electronic delivery and investors are provided with any necessary software or technical assistance at no cost.
Evidence to Show Delivery
When providing electronic delivery of regulatory documents, one should have reason to believe that any means selected will result in good delivery. Some examples are:
Informed Consent
Obtaining from the shareholder an informed consent to receive the information through specified electronic media (Internet, e-mail, etc.) coupled with notice and access as described above. Shareholders must provide an informed consent for electronic delivery that is revocable at any time. This could be in the form of a paper agreement or an electronic agreement. Informed consents may take the form of a general consent to receive some or all regulatory documents of any issuer electronically. An informed consent should include a description of: (1) electronic delivery medium (e.g., e-mail, Internet, disk, etc.); (2) the type of regulatory documents that will be delivered electronically; (3) the duration of the consent’s effectiveness (time period vs. infinite); (4) the possible costs that may be associated with on-line document access; and (5) how to revoke the consent.
Consent also can be obtained telephonically, provided a record of that consent is retained. This record should contain as much detail as any written consent, including whether the consent obtained is global and what electronic media will be used.
Hard Evidence of Receipt
Obtaining evidence that an investor actually received the information (e-mail return receipt or confirmation of accessing, downloading, or viewing a prospectus).
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