No-Action Letter Allows Physical Assets of Registered Investment Companies to be Held at a Non-Bank

February 11, 2014

The staff of the SEC’s Division of Investment Management issued a providing no-action relief from Section 17(f)(1) of the 1940 Act allowing a registered investment company to place and maintain custody of its gold bullion and other precious metals in a vault or other secure custody facility owned and operated by The Brink's Company or its subsidiaries ("Brink's") in the United States or in the United Kingdom. Notably, the Brink’s entities are not banks. The incoming letter successfully argued that that permitting Brink's to serve as an investment company’s precious metals custodian in the United States or the United Kingdom satisfies the concerns Congress sought to address in adopting Section 17(f)(1) of the 1940 Act, even though Brink's is not a bank or other qualified custodian under Section 17(f) of the 1940 Act and the rules thereunder,
Section 17(f) of the 1940 Act and the rules thereunder govern the safekeeping of Fund assets, and generally provide that a Fund must place and maintain its securities and similar investments only with certain qualified custodians. These qualified custodians include, for example, banks satisfying the qualification specified within Section 26(a)(1) of the 1940 Act, a member of a national securities exchange, or other entities that SEC has prescribed by rule, regulation, or order for the protection of investors.
Brink's is not a bank, a member of a national securities exchange or any of the other entities permitted to serve as a custodian to a Fund pursuant to rules and regulations adopted by the SEC under Section 17(f) of the 1940 Act. Nevertheless, the SEC staff granted no-action relief based on the following representations:
• Brink's remains a reporting company under the Securities Exchange Act of 1934, a majority-owned subsidiary of a reporting company or continues to provide financial disclosure about its operations substantively equivalent in all material respects to the information that Brink's currently is required to disclose;
• In the United States, with respect to each such vault or secure facility, Brink's remains a NYMEX/COMEX-approved Licensed Depository and, in the United Kingdom, Brink's remains an LMBA-member providing Precious Metals vaults and secure facilities;
• Brink's vaults – whether located in the United States or in London – provide substantially equivalent protections against misappropriation; and
• Brink's continues to maintain insurance coverage of at least $1 billion with respect to each such vault or secure facility to cover any custody-related losses incurred by its customers, including Funds. The insurance coverage must be available for each and every claim, which means that previous claims do not reduce the $1 billion of insurance coverage per vault or secure facility available for future claims.

Click here to access the no-action letter.


Investment Advisers, Investment Companies