SEC Issues No-Action Relief on Auditor Independence Requirements

June 22, 2016

The SEC has provided relief from Rule 2-01 of Regulation S-X, confirming that it would not recommend enforcement action against an entity within the "investment company complex" of which the Fidelity Funds are a part (a "Fidelity Entity"), if that Fidelity Entity continues to fulfill its regulatory requirements under the federal securities laws by using the audit services performed by a registered public accounting firm, where that firm has relationships that would cause non-compliance with Rule 2-0l(c)(l)(ii)(A) of Regulation S-X (the "Loan Provision"), subject to certain conditions.

In its June 20, 2016 no-action letter, the SEC stated that it would not recommend enforcement action as outlined above, so long as the following conditions are met:

  1. The auditor has complied with certain PCAOB rules regarding independence disclosures, or, with respect to a Fidelity Entity to which the rules do not apply, has provided substantially equivalent communications;
  2. The auditor’s non-compliance is with respect to certain circumstances that could have potential implications under the Loan Provision; and
  3. Notwithstanding such non-compliance, the auditor has determined that it is objective and impartial with respect to the issues “encompassed within its engagement.”

The Loan Provision provides, among other things, that an auditor is not independent if the auditor, any “covered person” of the firm or any of his or her immediate family members has a loan (including any margin loan) to or from an “audit client,” or an audit client’s officers, directors, or record or beneficial owners of more than 10% of the audit client’s equity securities. For purposes of the rule, “audit client” includes any affiliate of the entity whose financial statements are being audited, including those that control, are controlled by or are under common control with such entities, as well as each entity in an investment company complex when the audit client is an entity that is part of an investment company complex.
Click here to access the Letter.


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Investment Advisers, Investment Companies