Certain multi-national advisory firms rely on the SEC’s positions in a line of no-action letters sometimes referred to as the “Unibanco letters” regarding the extra- territorial application of the Investment Advisers Act. In the Unibanco letters, the staff provided assurances that it would not recommend enforcement action to the SEC regarding the applicability of the substantive provisions of the Advisers Act with respect to a non-U.S. adviser’s relationships with its non-U.S. clients. In addition, the staff agreed not to recommend enforcement under section 203(a) of the Advisers Act if a non-U.S. advisory affiliate of a registered adviser, often termed a ‘‘participating affiliate,’’ shares personnel with, and provides certain services to U.S. clients through, the registered adviser, without such participating affiliate registering under the Advisers Act. In this release, the SEC provides guidance (Guidance) on the documentation that the foreign advisers should submit.
In Unibanco, the SEC has provided assurances that it would not recommend enforcement action if the foreign adviser does not register with the SEC in situations in which:
• the unregistered participating affiliate and the registered adviser are separately organized;
• the registered adviser is staffed with personnel (located in the U.S. or abroad) who are capable of providing investment advice;
• all personnel of the participating affiliate involved in U.S. advisory activities are deemed ‘‘associated persons’’ of the registered adviser; and
• the SEC has adequate access to trading and other records of the participating affiliate and to its personnel to the extent necessary to enable it to identify conduct that may harm U.S. clients or markets.
Through the Information Update and guidance, the SEC standardized the documents that it expects to receive from advisers seeking to rely on the Unibanco letters, which are conditioned on compliance with certain representations such as appointing a U.S. agent for service of process on participating affiliates. In the Update, the SEC states that documentation of the following general representations and undertakings by participating affiliate(s) addresses the concerns raised in the Unibanco letters regarding the staff’s ability to monitor the conduct of participating affiliates:
• The name of the participating affiliate and registered adviser, and a representation that the participating affiliate is an associated person of the registered adviser within the meaning of Section 202(a)(17) of the Advisers Act.
• Documentation of the appointment of an agent for service of process by a participating affiliate, including the name and contact information of such agent.
• A representation that the participating affiliate is under the jurisdiction of U.S. courts for actions arising, directly or indirectly, under U.S. securities laws or the securities laws of any state in connection with any of the following for U.S. clients: (1) investment advisory activities; (2) related securities activities arising out of or relating to any investment advisory services provided by the participating affiliate through its registered adviser; and (3) any related transactions. In addition, a representation that the participating affiliate has designated and appointed, without power of revocation, [insert agent] upon whom may be served all process, pleadings, or other papers in: (1) any investigation or administrative proceeding conducted by the SEC; and (2) any civil suit or action brought against the registered adviser or the participating affiliate or in which the participating affiliate has been joined as defendant or respondent, in any appropriate court in any place subject to the jurisdiction of any state or of the U.S. or any of its territories or possessions or the District of Columbia in connection with the activities and transactions.
• A representation that any such civil suit or action or administrative proceeding may be commenced by the service of process upon, and service of an administrative subpoena shall be effective service upon, [insert agent], and such service shall be taken and held in all courts and administrative tribunals to be valid and binding as if personal service has been made.
• A representation that the participating affiliate will appoint a successor agent if the participating affiliate or any person discharges the [insert agent] or the [insert agent] is unwilling or unable to accept service on behalf of the participating affiliate at any time until six years have elapsed from the date of the last investment advisory activity. Additionally, the participating affiliate undertakes to advise the SEC promptly of any change to [insert agent]’s name or address during the applicable period.
• A representation that the participating affiliate will promptly, upon receipt of an administrative subpoena, demand, or request for voluntary cooperation made during a routine or special inspection or otherwise, provide to the SEC or the SEC’s staff any and all of the books and records required to be maintained in accordance with staff guidance, and make available for testimony before, or other questioning by, the SEC or the SE’s staff the employees of the participating affiliate (other than clerical or ministerial personnel) involved in the investment advisory activities or related securities transactions, at such place as the SEC may designate in the U.S. or, at the SEC’s option, in the country where the records are kept or such personnel reside.
• A representation that the participating affiliate will produce, pursuant to an administrative subpoena or a request for voluntary cooperation, any documents in accordance with staff guidance.
The Update also covers how such information should be submitted to the SEC.
SEC Information Update: https://www.sec.gov/investment/im-info-2017-03.pdf