SEC to Re-evaluate Loan Rule

JUNE 17, 2017   RECENT DEVELOPMENTS

In comments made before the 2017 SEC/NASAA Annual Section 19(d) Conference, SEC Commissioner Michael Piwowar stated that as Acting Chairman he had directed the SEC staff to re-examine the independence rules on lending relationships, which deem that loans between the firm and its audit client and certain "related" entities impair independence.  The rule, he said, includes loans from entities holding more than 10% of an audit client's securities, which may have no bearing on the auditor's objectivity if the entity cannot exercise influence over the shares. Suggesting that the situation creates undue compliance burdens, particularly in the asset management industry which often holds securities for customers without beneficial ownership, he said regulators should ensure that the rules function as intended and in an efficient and effective manner.  The SEC Staff addressed the matter in a "no action" letter to Fidelity Management and Research Co. issued almost one year ago, a temporary fix set to expire 18 months from the date of the letter.