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THIS LETTER IS WITHDRAWN.
Please consult the following web page for more information: https://www.sec.gov/divisions/investment/im-modified-withdrawn-staff-statements.
Regulation S-X — Rule 2-01
Fidelity Management & Research Company et al.
September 22, 2017
OFFICE OF CHIEF COUNSEL
DIVISION OF INVESTMENT MANAGEMENT
In a letter to you dated June 20, 2016 (the "Letter"),[1] the staff of the Division of Investment Management responded to your request that we generally not object to a Fidelity Entity[2] using financial statements to comply with the federal securities laws that require an audit opinion, where such opinion is made by an Audit Firm[3] that has identified a failure to comply with the Loan Provision,[4] and where that failure to comply with the Loan Provision is limited to the Lending Relationships (as described in the Letter), including making a reasonable inquiry as described in your letter, and where the Audit Firm's judgment remains objective and impartial. Accordingly, we stated that, based on the facts and circumstances set out in your request, we would not recommend enforcement action to the U.S. Securities and Exchange Commission (the "Commission") against a Fidelity Entity if that Fidelity Entity continues to fulfill its regulatory requirements under the federal securities laws by using the audit services performed by an Audit Firm that is not in compliance with the Loan Provision under the circumstances described in the Letter, so long as:
- the Audit Firm has complied with PCAOB Rule 3526(b)(1) and (2),[5] or, with respect to any Fidelity Entity to which Rule 3526 does not apply, has provided substantially equivalent communications;
- the non-compliance of the Audit Firm is with respect to certain specific lending and ownership relationships as described in the Letter; and
- notwithstanding such non-compliance, the Audit Firm has concluded that it is objective and impartial with respect to the issues encompassed within its engagement.[6]
The Letter stated that our assurances are temporary and expire eighteen months from issuance. The Letter also stated that we may or may not renew these assurances as appropriate. We now extend such assurances. We would not recommend enforcement action based on your facts and representations as described in the Letter.
Because our position is based on your facts and representations, you should note that any different facts or circumstances might require a different conclusion. This letter represents only the Division's position on enforcement action and does not purport to express any legal conclusion on the questions presented. This letter will be withdrawn upon the effectiveness of any amendments to the Loan Provision designed to address the concerns expressed in the Letter.[7]
James D. McGinnis
Senior Counsel
[2] A Fidelity Entity is defined in the Letter as an entity within an "investment company complex" (as defined in Rule 2-01(f)(14) of Regulation S-X), of which the Fidelity Funds are a part. Fidelity Funds are defined in the Letter as open-end registered investment companies sponsored by Fidelity Management & Research Company or an affiliate.
[3] An Audit Firm is defined in the Letter as a public accounting firm registered with the Public Company Accounting Oversight Board ("PCAOB").
[4] The Loan Provision is defined in the Letter as Rule 2-01(c)(1)(ii)(A) of Regulation S-X. Rule 2-01(b) of Regulation S-X provides that the Commission will not recognize an accountant as independent with respect to an audit client if the accountant is not, or a reasonable investor with knowledge of all relevant facts and circumstances would conclude that the accountant is not, capable of exercising objective and impartial judgment on all issues encompassed within the accountant's engagement. Rule 2-01(c) sets forth a non-exclusive specification of circumstances that are considered inconsistent with independence under Rule 2-01(b), including the Loan Provision.
[5] PCAOB Rule 3520 requires the Audit Firm and its associated persons to be independent of the Audit Firm's audit clients. PCAOB Rule 3526(a) requires that an Audit Firm provide its prospective clients with a written description of all relationships between the Audit Firm and the audit client (or certain audit client personnel) that may reasonably be thought to bear on independence. In addition, Rule 3526(b) imposes an ongoing requirement for an Audit Firm to annually communicate with each of its audit clients regarding its independence. Such communication must include: (1) a written description of any relationships between the Audit Firm and the audit client (or certain audit client personnel) that may reasonably be thought to bear on independence; (2) a discussion with the client's audit committee regarding the potential effects of such relationships on its independence; and (3) a written affirmation that, as of the date of the communication, the Audit Firm is independent in compliance with Rule 3520.
[6] See Fidelity Management & Research Company, et al., supra note 1. As noted in the Letter, the staff understands that investors rely upon audited financial statements in making their investment decisions. Accordingly, timely and accurate financial statements, audited by an Audit Firm that is independent, are crucial to capital formation and investor confidence. Id.
[7] Our analysis underlying these assurances has been developed in consultation with the staff of the Office of the Chief Accountant and the Division of Corporation Finance.
http://www.sec.gov/divisions/investment/noaction/2017/fidelity-management-research-092217-regsx-rule-2-01.htm
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