On October 26, 2017, the SEC staff issued a no-action letter providing relief to broker-dealers that provide research that constitutes “investment advice” under the Investment Advisers Act of 1940 to investment managers subject to the prohibitions on soft-dollar use imposed by the European Union’s amended Markets in Financial Instruments Directive (MiFID II), which took effect in January 2018. Under the relief, broker-dealers are able to receive payments for this research from investment managers paying their own money (i.e., “hard dollars”), from separate research payment accounts funded with client money or from a combination of the two. Absent this relief, a broker-dealer receiving these sorts of compensation for providing research that constitutes investment advice would be required to register as an investment adviser under the Advisers Act. The 2017 no-action relief was temporary and set to expire on July 3, 2020.

On November 4, 2019, the SEC staff extended for three additional years the temporary relief granted in the 2017 no-action letter. Accordingly, the relief will now expire on July 3, 2023 unless further action is taken. The SEC staff stated that the extension of the relief would allow the staff to further monitor and assess the effects of MiFID II on the market for research, including the effects of MiFID II on small- and mid-sized entities, and to consider whether additional guidance or recommendations are necessary. The SEC also noted that the additional time would enable EU regulators to evaluate the effects of MiFID II and consider modifications to their rules.

The SEC staff’s October 26, 2017 no-action letter is available here.

The SEC staff’s November 4, 2019 letter extending the 2017 relief is available here.

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