SEC Considering Fix to Loan Rule

The Securities and Exchange Commission’s staff is considering recommending a regulatory fix to the auditor independence issues caused by the Loan Rule, according to the SEC‘s semiannual regulatory agenda, which was made publicly available Thursday. The “Loan Rule,” actually a provision of Rule 2-01 of Regulation S-X, provides that an accountant is not independent when the accounting firm has any loan from record or beneficial owners of more than 10% of the audit client’s equity securities. The provision has proven problematic in practice; the SEC last year issued a no-action letter with respect to certain lending relationships involving auditors of investment funds, but that no-action relief will expire on December 20, 2017. According to the regulatory agenda, the Office of the Chief Accountant is considering recommending that the Commission amend rule 2-01(c)(1)(ii)(A) of Regulation S-X regarding the independence of an accountant when the accountant has a lending relationship with an entity that holds equity securities of the accountant’s audit client.

The regulatory agenda is a nonbinding indicator of the rulemaking plans of the SEC’s chairman and staff. The current agenda includes a number of changes from the previous agenda, including the omission of the planned proposal of a new rule for a uniform fiduciary standard of conduct for broker-dealers and investment advisers when providing personalized investment advice about securities to retail customers. At first blush, that seems quite surprising, as SEC Chairman Jay Clayton has specifically indicated his interest in taking action in this area, ideally in conjunction with the Department of Labor. There is a straightforward answer: Although the regulatory agenda was only released yesterday, it reflects information as of March 29, when Commissioner Michael Piwowar was Acting Chairman. For Clayton’s views we will have to wait for the release of the next semiannual agenda in six months or so.

The unified agenda for all federal agencies, including the SEC, is online at

For my post last year on the Loan Rule and the SEC’s no-action relief, see

For the no-action relief itself, see

Copyright 2017, John M. Baker, Esq. This article was originally posted to the FundLaw List, To subscribe to FundLaw, send a blank e-mail to

Nothing herein is intended as legal or financial advice. The law is different in different jurisdictions, and the facts of a particular matter can change the application of the law. Please consult an attorney or your financial advisor before acting upon the information contained in this article.


Securities Attorney at Sallah Astarita & Cox | 212-509-6544 | | Website | + posts

Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.

He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page -, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.