The SEC staff has provided no-action relief that allows US advisers and broker-dealers to continue current payment and aggregation practices for research and brokerage notwithstanding impending MiFID II requirements. The 3 companion No-Action Letters allow (i) broker-dealers to avoid adviser registration even when receiving research payments in hard dollars, (ii) advisers to continue to aggregate orders even though MiFID II may require certain clients to pay more for research, and (iii) broker-dealers to continue to receive bundled commissions. SEC Chairman Clayton explained that the no-action relief was designed to “reduce confusion and operational difficulties that might arise in the transition to MiFID II’s research provisions.”
OUR TAKE: The No Action Letters are good news for U.S. advisers and broker-dealers, who will not have to change business practices as a result of MiFID II. The bigger question is how long European regulators will allow U.S. firms a pass.
The SEC’s Division of Investment Management has released additional Form ADV FAQs that affect cross-border investment managers. The staff advises that non-U.S. investment funds, including UCITs or their equivalent, should be classified as “pooled investment vehicles” when describing assets. Also, a non-resident GP or managing agent of a relying adviser must file Form ADV-NR. The FAQs also broadly define “borrowings” for purposes of whether an adviser engages in borrowing transactions on behalf of clients, explain social media disclosure, and clarify that the new Form supersedes SEC no-action relief with respect to relying advisers.
OUR TAKE: The SEC continues to take an extra-territorial regulatory approach to any cross-border adviser that must register in the U.S.
The staff of the SEC’s Division of Investment Management has issued guidance on how multi-national firms can ensure compliance with the Advisers Act without subjecting all non-U.S. operations to U.S. regulation. For many years, firms have relied on the Unibanco doctrine, whereby a non-U.S. affiliate can share resources with a registered investment adviser so long as the firm complies with several conditions including subjecting books and records to SEC review and appointing an agent for service of process. In this guidance, the SEC recommends that firms email the SEC with the Unibanco undertakings.
OUR TAKE: This is an unusual process. Ordinarily, a firm seeking to rely on no-action relief would assert (and demonstrate) compliance if questioned by regulators. Apparently, in the Unibanco context, the SEC staff wants registrants to proactively make this informal email filing in order to rely. It is unclear whether firms would not be able to rely if they decline or fail to email the undertakings to the SEC.