Investment Company Act of 1940 - Section 22c and Rule 22c-2
Investment Company Institute
February 1, 2007
Elizabeth Krentzman, General Counsel
Investment Company Institute
1401 H Street, N.W.
Washington, D.C. 20005
Lawrence R. Uhlick, Chief Executive Officer
Institute of International Bankers
299 Park Avenue, 17th Floor
New York, NY 10171
Re: Rule 22c-2 and Information Provided by Certain Foreign Financial Intermediaries
Dear Ms. Krentzman and Mr. Uhlick:
In your letter dated January 26, 2007, you request assurance that we would not recommend enforcement action to the Securities and Exchange Commission ("Commission") under rule 22c-2 under the Investment Company Act of 1940 against a registered investment company ("fund") that enters into agreements pursuant to which certain foreign financial intermediaries will supply, with respect to shareholder accounts established before January 1, 2008, transaction information that is linked to identification numbers generated by a financial intermediary, rather than to government issued identification numbers required under rule 22c 2.
The Commission adopted rule 22c 2 in 2005.1
The rule requires, among other things, that certain funds enter into agreements with their financial intermediaries under which the intermediary agrees to supply information on the identity and transactions of shareholders who hold fund shares through the intermediary. A primary purpose of the rule was to enhance the transparency of shareholder accounts that are held in nominee name, to enable funds to more effectively monitor trading activity that is unlawful or detrimental to the interests of long-term shareholders. The Commission adopted amendments to rule 22c-2 in 2006 that clarify the operation of the rule and reduce the number of intermediaries covered by the rule, in order to reduce costs while still achieving the goals of the rulemaking.2
Funds and intermediaries must enter into shareholder information agreements under the amended rule by April 16, 2007.
As your letter explains, shareholder information agreements under rule 22c-2 must require intermediaries to supply, upon the request of a fund, shareholder identity and transaction information that is linked to a taxpayer identification number, individual taxpayer identification number, or other government-issued identifier ("GII"). In your letter, you state that foreign law governing certain foreign financial intermediaries prohibits them from providing a customer's GII without the customer's affirmative consent. You state that foreign intermediaries believe that obtaining the necessary affirmative consent from their thousands of customers with established accounts is not feasible and that, in the absence of this consent, the intermediaries will be unable to meet their obligations to provide this information in accordance with their shareholder information agreements with the funds.
You request that, in these circumstances, foreign intermediaries be permitted to supply funds with shareholder identity information in the form of a unique identifier generated by the intermediary itself, rather than a GII. This approach would apply only to accounts established with the foreign intermediary prior to January 1, 2008. You assert that this limited use of intermediary generated identification numbers will preserve the primary function of shareholder information agreements because funds will continue to receive a unique number associated with the accounts held by a single beneficial owner or owner at that intermediary, allowing funds to sufficiently monitor for illicit trading activity.
Based on the facts and representations set forth in your letter, and without necessarily agreeing with your legal analysis, we would not recommend enforcement action to the Commission against funds that enter into shareholder information agreements permitting certain foreign intermediaries to supply transaction information to funds through unique identification numbers generated by a financial intermediary, rather than through the GIIs required under rule 22c-2, for shareholder accounts established before January 1, 2008.3
Our position is based particularly on your representations that:
- Unique identification numbers generated by financial intermediaries would be used only by foreign financial intermediaries that are subject to foreign law prohibiting the sharing of a shareholder's GII without the affirmative prior consent of the shareholder;
- The financial intermediary that generates the unique identification number would use the same unique number to identify all accounts held with that intermediary that have the same ultimate beneficial owner or owners;
- GIIs would be used to fulfill the requirements of rule 22c-2 for shareholder accounts established with such foreign intermediaries after January 1, 2008; and
- The financial intermediary agrees to restrict or prohibit, upon request of a fund, a shareholder that is associated with a particular GII or unique identification number generated by the financial intermediary, from further purchases of the fund's shares.
This response expresses the Division's position on enforcement action only, and does not express any legal conclusions on the issues presented. Because this position is based on the facts and representations in your letter, you should note that different facts or representations may require a different conclusion.
Robert E. Plaze
The Incoming Letter is in Acrobat format.