SEC Staff Issues No-Action Relief on the Use of Standing Letters of Instruction and Related Guidance for Investment Advisers

April 10, 2017

The staff of the Division of Investment Management (Staff) of the U.S. Securities and Exchange Commission (SEC) released three related matters of guidance on February 21, 2017, which provide additional clarity to SEC-registered investment advisers on the topic of Rule 206(4)-2 under the Investment Advisers Act of 1940 (Custody Rule). The guidance consists of:

  • A no-action letter (IAA Letter) to the Investment Adviser Association (IAA), providing relief from the Custody Rule with respect to certain standing letters of authorization or similar arrangements authorizing payments or transfers to third parties (SLOAs);
  • An update to Custody Rule FAQ II.4 (Updated FAQ), which clarifies prior guidance regarding transfers among multiple accounts of a single client; and
  • A Guidance Update (IM Guidance) from the Division of Investment Management (Division), which details when certain custody agreement provisions may cause an adviser to be deemed to have custody, even where the adviser did not intend to have custody, and provides a safe harbor from the Custody Rule.

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