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SEC Extends Loan Rule No-Action Relief

The SEC recently extended no-action relief granted in 2016 in connection with a rule that requires an auditing firm and its associated persons to be independent of their audit clients. The original no-action relief was set to expire in December 2017. In its September letter, the SEC staff agreed to extend the relief that allows registered funds to comply with regulatory requirements if the funds’ auditor is not in compliance with the Loan Rule, which provides broadly that an accounting firm is not independent of an audit client if it has certain lending and ownership relationships with entities within the fund complex of the audit client. There is no expiration date provided in the current relief. In the original no-action relief, the SEC staff wrote that it would not object to a fund group using financial statements that were audited by a firm that failed to comply with the Loan Rule as long as the audit firm’s judgment remained objective and impartial. According to a client alert from law firm Morrison Foerster, fund groups can continue to rely on their auditor’s independence as long as the auditor continues to represent that it is objective and impartial with respect to the issues encompassed in its engagement.