SEC Adopts Rule Change To Address Funds' Auditor Independence Problem

In a June 18, 2019 release (the "Release"), the SEC adopted amendments to the "Loan Rule" (as defined below), a part of the SEC's auditor independence rule, Rule 2-01 of Regulation S-X. The amendments, which were proposed in 2018, should virtually eliminate the problems that led to the SEC staff's 2016 no-action letter regarding the application of the Loan Rule to an investment company complex.¹

The Release acknowledges that "there are certain fact patterns in which an auditor's objectivity and impartiality are not impaired despite a failure to comply with the requirements of the [Loan Rule]" and, further, that these fact patterns have occurred most frequently with respect to both registered funds and private funds.