The SEC's Division of Investment Management yesterday issued an
interpretive letter to the Investment Company Institute and the Investment
Counsel Association of America, giving guidance on the application of
Regulation S-P to investment companies and investment advisers. Guidance on
Questions Regarding Regulation S-P (Apr. 9, 2001). Regulation S-P contains
the privacy rules under the Gramm-Leach-Bliley Act for SEC-regulated
financial institutions and has a compliance date of July 1, 2001. The
interpretive letter takes a number of positions in question-and-answer
format, including the following:
--Regulation S-P does not apply to hedge funds or other financial
institutions that are excluded from regulation under section 3(c)(1) or
3(c)(7) of the Investment Company Act of 1940. However, the interpretive
letter leaves open the possibility that Federal Trade Commission regulations
may apply. The letter does not (except by negative implication) address the
question whether hedge fund investors might be considered customers of the
fund's investment adviser.
--A wrap account client who has a written contract with the wrap
account sponsor, but not with the wrap account's investment adviser,
nevertheless does have a customer relationship with the investment adviser.
The investment adviser must provide an initial privacy notice to a wrap
account client no later than when it begins to provide services to the
--A privacy notice provided jointly by multiple financial
institutions in a fund complex need not separately name each institution to
which the privacy notice applies, as long as the notice clearly identifies
--A fund can deliver to a customer with multiple accounts a single
initial or annual privacy notice that applies to all the accounts, as long
as (i) the privacy notice makes clear each of the accounts to which it
applies, (ii) the privacy notice is accurate with respect to the privacy
policies applicable to each account, and (iii) a customer with multiple
accounts who receives a single notice can reasonably be expected to receive
actual notice in writing with respect to each account.
--An investment adviser is not responsible for the privacy policies
of broker-dealers that execute transactions the adviser's clients have
authorized, or of funds that the adviser recommends to its clients.
I have put the SEC interpretive letter on the Yahoo Groups web site,
and it can be accessed in PDF format from
John M. Baker <JBaker@...
Stradley, Ronon, Stevens & Young, LLP Http://www.stradley.com
1220 19th Street, N.W., Suite 700, Washington, DC 20036
(202) 822-9611 Fax (202) 822-0140
FundLaw Listowner Http://groups.yahoo.com/group/fundlaw