August 24, 1992
TO: OPERATIONS COMMITTEE NO. 27-92
TRANSFER AGENT ADVISORY COMMITTEE NO. 47-92
RE: ICI MUTUAL INSURANCE COMPANY COVERAGE FOR TELEFACSIMILE
TRANSACTIONS
__________________________________________________________
ICI Mutual Insurance Company ("ICI Mutual"), the investment
management industry’s captive insurance company, has been
studying the issue of coverage under the Investment Company
Blanket Bond ("Bond") for losses resulting from forged redemption
requests or other instructions transmitted by telefacsimile. The
Underwriting/Transfer Agent Ad Hoc Committee ("Ad Hoc
Committee"), composed of members of the Underwriting and Risk
Prevention Committees of ICI Mutual and the Transfer Agent
Advisory Committee of the Investment Company Institute,
recommended that ICI Mutual develop coverage specifically
addressing such a loss.
Attached is a copy of a draft insuring agreement relating
to telefacsimile transactions that would be attached to the Bond.
ICI Mutual is seeking the input of the Operations Committee and
the Transfer Agent Advisory Committee of the Investment Company
Institute concerning issues that may arise from an operational
standpoint.
The insuring agreement would provide coverage for losses
caused by a telefacsimile transaction where such telefacsimile
transaction is unauthorized or fraudulent and is made with the
manifest intent to deceive, provided that the entity that
receives such requests generally maintains and follows certain
procedures. The insuring agreement includes the following
procedures:
1. All telefacsimile transaction requests shall be
retained for at least six months.
2. The identity of the sender shall be tested by
requiring the sender to include on the request an
identification number consisting of at least four
characters or another identity test acceptable to
the Insured and ICI Mutual.
3. The request must be dated and purported to be
signed by the shareholder or any financial or
banking institution or stockbroker.
4. A written confirmation must be sent to the
shareholder of the account at the address of record
at the end of the Insured’s next regular processing
cycle, but no later than five business days after
the transaction.
The proposed coverage would be subject to certain
exclusions, including any loss resulting from any telefacsimile
redemption where the proceeds of such redemption were to be paid
to other than the shareholder of record or to a person officially
designated to receive redemption proceeds or to a bank account
officially designated to receive redemption proceeds, or where
the proceeds of such redemption were to be sent to an address
other than the record address or to a record address which was
designated over the telephone fewer than thirty days prior to the
redemption or designated in writing less than one day prior to
such redemption.
The Ad Hoc Committee has recommended that the limit of
liability for the insuring agreement be fifty thousand dollars
($50,000). The coverage would be provided on a coinsurance basis
with the Insured bearing twenty percent (20%) of each covered
loss and ICI Mutual bearing eighty percent (80%) of each covered
loss.
ICI Mutual would appreciate the input of the Operations
Committee and Transfer Agent Advisory Committee relating to the
proposed coverage. In particular, we are interested in comments
relating to the procedures and the definition of "Telefacsimile
System".
Please provide your comments to Natalie Shirley, General
Counsel, ICI Mutual Insurance Company, 1600 M Street, NW,
Washington, D.C. 20036 by September 18, 1992. Thank you for your
assistance.
Natalie Shirley
General Counsel
ICI Mutual Insurance Company
Attachment