Standing letters of authorization
IAA No-Action Letter (21 February 2017)
Investment Adviser Association, SEC Staff No-Action Letter on standing letters of instruction and the custody rule
Read the current text at the source ↗Guide: The Custody Rule Explained: Rule 206(4)-2 for Investment Advisers
- Applies to
- SEC-registered investment adviser
- Effective
- February 21, 2017
When this applies
Relief runs to the facts presented and no further. The staff said so in terms: “This conclusion is based on all of the facts and representations set forth in your letter. You should note that any different facts or representations might require a different conclusion.” A firm relying on this letter is representing that its own arrangement matches all seven conditions. Miss one and there is no relief, only a surprise examination that was not performed.
What the rule says
A description of the source text.
Staff of the Division of Investment Management's Chief Counsel's Office responded to the Investment Adviser Association on standing letters of instruction. The staff disagreed with the IAA's position and concluded that an adviser with SLOA authority to transfer client funds to a third party does have custody under Rule 206(4)-2. It said it would not recommend enforcement action for failing to obtain a surprise examination where seven conditions are met: (1) the client gives the qualified custodian a written instruction including the client's signature, the third party's name, and the third party's address or account number; (2) the client authorises the adviser in writing to direct transfers, either on a specified schedule or from time to time; (3) the custodian verifies the instruction and sends a transfer notice to the client after each transfer; (4) the client can terminate or change the instruction; (5) the adviser has no authority to designate or change the third party's identity, address or account details; (6) the adviser keeps records showing the third party is not a related party and is not at the same address as the adviser; and (7) the custodian sends the client an initial notice and an annual reconfirmation of the instruction.
What it requires
Luna's plain-English reading, not the Commission's words.
- 01The first question is not whether the letter applies, but whether the firm has custody at all. The staff's answer is that a SLOA giving the adviser discretion over the amount, payee or timing of transfers gives you custody; one structured without that discretion does not implicate the Custody Rule (footnote 1). The relief is only from the surprise examination.
- 02All seven, not most of them. There is no substantial-compliance version of a no-action letter.
- 03Condition five is the one firms fail: any ability to change where the money goes takes the arrangement outside the relief.
- 04Condition six creates a record the firm has to keep, so this letter has a books and records consequence as well as a custody one.
What examiners find
Luna's observations, not a Commission publication.
- Reliance on the letter with no record that the custodian sends the annual reconfirmation.
- Third-party details the adviser can edit in the custodian's system.
- Form ADV custody answers that do not match the firm's own SLOA population.
Topics
Source last checked against the regulator's copy on October 14, 2026. That date is written by an automated check, not by hand.
Luna Compliance is software, not a law firm. This page is not legal advice and reading it creates no attorney-client relationship. Where this page and the regulator's copy differ, the regulator's governs.