SEC Staff Solves Section 28(E)-MiFID II Compliance Conundrum—For Now

In a series of three "no-action" letters, the staff of the Securities and Exchange Commission (SEC) published guidance to address concerns by U.S. broker-dealers and investment advisers about how to comply with Markets in Financial Instruments Directive (MiFID II) rules that limit the use of soft dollars.  Among other things, the Division of Investment Management said that broker-dealers, on a temporary basis, may receive research payments from money managers in hard dollars or through MiFID II governed research accounts from clients subject to MiFID II, without being considered to be an investment adviser.

After consulting with European regulators, the SEC staff published the guidance in response to concerns that U.S. broker-dealers that must comply with MiFID II soft dollar limitations would be forced to register as investment advisers if they provided research for hard dollars.  The long-awaited guidance provides some clarity for financial institutions faced with