SEC Proposed Rule: Electronic Delivery as the New Default for Investor Communications

What Does the Proposed SEC Rule Do?

The Securities and Exchange Commission (“SEC”) has proposed new Regulation E‑Delivery (“Reg E‑Delivery”) as a comprehensive framework for electronic delivery (“e-delivery”) of regulatory disclosures, reports, and other required information under the federal securities laws.

For the first time, the proposal would allow companies to default to e-delivery without requiring investors to opt in first. This represents a major shift from the SEC’s longstanding consent-based approach. The framework includes robust notice, opt‑out, and security safeguards while preserving investors’ right to receive paper free of charge.

Key features include replacing existing SEC interpretive guidance with uniform rules-based conditions, providing a detailed transition process for investors currently receiving paper, rescinding Rule 30e‑3 and amending proxy and tender offer rules, and establishing an exemption from the Electronic Signatures in Global and National Commerce Act (the “E‑SIGN Act”) consumer consent requirements.

What Information and Parties Are Covered?

The rule applies broadly to “covered entities” issuing “covered information” to “covered recipients.” Covered entities have delivery obligations under the federal securities laws, including issuers, investment companies (mutual funds, ETFs, closed‑end funds), broker‑dealers, investment advisers, and obligors and trustees under indentures.

“Covered information” under the proposed rule is defined broadly to include any information required to be delivered under the Securities Act of 1933, as amended (the “Securities Act”), the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Investment Company Act of 1940 (the “ICA”), the Investment Advisers Act of 1940, the Trust Indenture Act of 1939, or other federal securities laws, subject to express exclusions. Examples of “covered information” under the proposed rule include, without limitation, for each category of reporting entity:

• Investment companies: Prospectuses, annual and semi‑annual shareholder reports, notices under Rule 19a‑1 under the ICA, proxy statements, and information statements.
• Issuers and soliciting persons: Prospectuses under the Securities Act, annual reports to security holders, proxy statements, information statements, tender offer statements, and offering circulars.
• Obligors and trustees: Bondholders’ lists and reports to security holders under indentures.
• Broker‑dealers: Trade confirmations, Form CRS disclosures, Regulation S‑AM disclosures, and other required customer communications.
• Investment advisers: Form ADV Part 2 brochures, marketing and testimonial disclosures, agency cross‑transaction disclosures, and custody‑rule account statement notices.

A “covered recipient” under the proposed rule includes any current or prospective customer, client, investor, security holder, counterparty, or similar recipient to whom a covered entity must deliver covered information.

The rule excludes information under Regulation Crowdfunding, Exchange Act Rule 15c2‑11, trade acknowledgments for security‑based swap transactions, filings required to be publicly available but not delivered to specific recipients (such as Regulation FD disclosures or Form ADV Part 1), and disclosures required solely under state or SRO rules.

What Are the Core Elements of the Proposed Framework?

Default Electronic Delivery Without Prior Consent. Reg E‑Delivery would permit covered entities to use e-delivery to satisfy federal delivery obligations without first obtaining recipient consent. Use of Reg E‑Delivery is optional. Covered entities can continue paper delivery or use other compliant electronic methods. The substantive disclosure and liability standards under the securities laws apply equally to electronic and paper delivery.

Technology-Neutral Approach. The proposed definitions are technology‑neutral. “Electronic address” includes email addresses, mobile phone numbers, web portals, app‑based notifications, or blockchain messaging. “Electronic delivery” means delivery of covered information to a covered recipient’s electronic address. The definitions are designed to be adaptable to future innovations. The SEC explicitly contemplates that blockchain and other distributed‑ledger technologies could be used, provided the messaging meets the rule’s requirements.

Two Permitted Electronic Delivery Methods. Reg E‑Delivery provides two principal methods for satisfying delivery requirements electronically:

1. Statement of Availability. Under this “notice and access” approach, the covered entity sends a statement to the recipient’s electronic address that covered information is available online. The statement must prominently identify the covered entity and type of information, describe whether it requires time‑sensitive action, provide a direct website link (with secure access for personal financial information (“PFI”)), and explain the recipient’s rights to paper copies, opt‑out, and address updates, each of which must be provided free of charge. Covered entities must maintain covered information on a website for a minimum period, which must be at least three years for materials containing PFI and at least one year for materials that do not contain PFI (unless a different period is provided under federal securities laws). Information must be convenient for reading online, printing, and electronic retention.
2. Direct Delivery. The second method permits direct electronic delivery (e.g., email with attachments) of covered information that does not include PFI. The communication must include the same core content as a statement of availability, with all covered information in the body or as an attachment.

Personal Financial Information. PFI (account numbers, transaction details) cannot be delivered via direct delivery and must be accessed through a secure process such as a secure portal or authenticated app.

Timing and Right to Paper. E-delivery must occur no later than the required delivery date under securities law. Covered entities must send paper copies free of charge upon request within three business days. Recipients may opt out of e-delivery at any time and receive paper, and may choose paper for some document types while receiving others electronically.

E‑Delivery Failures. Covered entities must adopt written policies to identify and remediate e-delivery failures (including any “bounce-backs”), including obtaining a new electronic address or delivering in paper format until the recipient provides an updated address.

How Will Investors Currently Receiving Paper Be Transitioned to Default E-Delivery?

The proposal includes a transition regime for covered recipients currently receiving paper copies. Covered entities must send an initial paper notice at least 180 days before the transition date, followed by a follow-up notice 30 days before such date. The notices must alert the recipient to the upcoming transition, describe the covered information that will move to e-delivery, explain opt-out rights, and provide contact details (toll-free number and website) to opt out or update an electronic address. If a recipient updates or confirms an address after the initial notice, the follow-up notice is not required.

How Does the Proposal Interact with the E‑SIGN Act?

Under the E‑SIGN Act, certain consumer disclosures delivered electronically are subject to special consent requirements. The proposal would exempt covered information delivered under Reg E-Delivery from these requirements, effectively replacing the E‑SIGN consent procedures with the rule’s own notice, opt-out, and access framework.

What Changes Are Proposed to Existing SEC Rules and Guidance?

Rescission of Rule 30e‑3. The SEC proposes to rescind Rule 30e‑3, which currently allows investment companies to satisfy shareholder report delivery by posting reports online and mailing a paper notice. Under Reg E-Delivery, default e-delivery would be available for recipients with electronic addresses, with paper reserved for those who opt out or never respond.

Amendments to Proxy and Tender Offer Rules. The proposal would substantially revise the proxy “notice and access” framework in Exchange Act Regulation 14A, Regulation 14C, and tender offer dissemination rules to harmonize them with Reg E-Delivery. The existing Notice of Internet Availability of Proxy Materials would be replaced by a statement of availability that must comply with Reg E‑Delivery’s requirements plus proxy‑specific content, including a prominent legend regarding proxy material availability for the shareholder meeting and required control/identification numbers for accessing the proxy card. Certain historically important but now less necessary content requirements would be eliminated. Any electronic delivery of proxy materials would be required to comply with Reg E-Delivery.

Next Steps

The proposal remains subject to public comment and may change before adoption, but public companies and other covered entities may wish to begin assessing readiness now. Useful early steps may include, depending on your unique circumstances:

• Take Inventory of Current Practices: Inventorying which SEC-required communications (e.g., prospectuses, proxy materials, annual reports, and other shareholder communications) are currently delivered in paper versus electronically, and identifying the business units and service providers responsible for those processes.
• Assess Electronic Records: Assessing the completeness and accuracy of electronic contact information on file for shareholders, investors, and other covered recipients.
• Evaluate Existing E-Delivery Media for Compliance with Proposed Rule: Evaluating whether existing investor portals, websites, mobile applications, and authentication procedures would meet the proposal’s requirements, particularly for materials containing PFI.
• Review E-Delivery Policies and Procedures: Reviewing policies and procedures addressing e-delivery failures, website availability, investor delivery preferences, and paper copy requests.
• Consider Commenting on the Proposed Rule: Considering whether to submit comments to the SEC, alone or through an industry group, on aspects of the proposal that would affect your business.

If adopted substantially as proposed, Reg E-Delivery would be the SEC’s most significant modernization of disclosure delivery since the notice-and-access framework was adopted nearly two decades ago, and could meaningfully reduce printing and mailing costs while establishing a single, rules-based e-delivery framework across the federal securities laws.

If you have questions about this alert or would like to discuss the proposal and its potential impact, please contact Vince Pecora or another Winthrop securities law attorney.