SEC Provides Regulatory Relief to Investment Companies and Investment Advisers

As discussed in our prior alert, on March 4, 2020, the Securities and Exchange Commission (SEC) Division of Investment Management extended the no-action position expressed in its 2019 no-action letter to the Independent Directors Council with respect to unforeseen or emergency circumstances to investment company board meetings held between March 4, 2020, and June 15, 2020.

Considering that the impacts of the coronavirus (COVID-19) may delay or prevent funds and advisers operating in affected areas from meeting certain regulatory obligations due to restrictions on large gatherings, travel and access to facilities, the potential limited availability of personnel and similar disruptions, on March 13, 2020, the SEC announced regulatory relief and issued two orders to “provide additional time so affected funds and advisers can continue meeting the expectations of their investors and clients,” said SEC Chairman Jay Clayton.

Below are some takeaways from the orders.

Relief Related to the Investment Company Act of 1940 (the Investment Company Act)

1. A registered management investment company or business development company (BDC) and any investment adviser of or principal underwriter for such registered management investment company or BDC is exempt from the requirements imposed under sections 15(c) and 32(a) of the Investment Company Act and Rules 12b-1(b)(2) and 15a-4(b)(2)(ii) under the Investment Company Act that votes of the board of directors of either the registered management investment company or BDC be cast in person, provided that:
   • reliance on this order is necessary or appropriate due to circumstances related to current or potential effects of COVID-19;
   • the votes required to be cast at an in-person meeting are instead cast at a meeting in which directors may participate by any means of communication that allows all directors participating to hear each other simultaneously during the meeting; and
   • the board of directors, including a majority of the directors who are not interested persons of the registered management investment company or BDC, ratifies the action taken pursuant to this exemption by vote cast at the next in-person meeting.

   The relief under this section is limited to the period from and including March 13, 2020, to June 15, 2020.
   
   

2. A registered fund that is required to file Form N-CEN pursuant to Rule 30a-1 under the Investment Company Act, or Form N-PORT pursuant to Rule 30b1-9 under the Investment Company Act, is temporarily exempt from such form filing requirements where the conditions below are satisfied:
   • The registered fund is unable to meet a filing deadline due to circumstances related to current or potential effects of COVID-19;
   • Any registered fund relying on this order promptly notifies the SEC staff via email at IM-EmergencyRelief@sec.gov stating:
     • that it is relying on this order;
     • a brief description of the reasons why it could not file its report on a timely basis; and
     • the estimated date by which it expects to file the report.
   • Any registered fund relying on this order includes a statement on the applicable registered fund’s public website briefly stating that it is relying on this order and the reasons why it could not file its reports on a timely basis;
   • The registered fund required to file such Form N-CEN or Form N-PORT files such report as soon as practicable, but not later than 45 days after the original due date; and
   • Any Form N-CEN or Form N-PORT filed pursuant to this order must include a statement of the filer that it relied on this order and the reasons why it was unable to file such report on a timely basis.

   The relief under this section is limited to filing obligations for which the original due date is on or after March 13, 2020, but on or prior to April 30, 2020.
   
   

3. A registered management investment company is temporarily exempt from the requirements of Section 30(e) of the Investment Company Act and Rule 30e-1 thereunder to transmit annual and semi-annual reports to investors, and a registered unit investment trust is temporarily exempt from the requirements of Section 30(e) of the Investment Company Act and Rule 30e-2 thereunder to transmit annual and semi-annual reports to unitholders where the conditions below are satisfied:
   • The registered fund is unable to prepare or transmit the report due to circumstances related to current or potential effects of COVID-19;
   • Any registered fund relying on this order promptly notifies the SEC staff via email at IM-EmergencyRelief@sec.gov stating:
     • that it is relying on this order;
     • a brief description of the reasons why it could not transmit its report on a timely basis; and
     • the estimated date by which it expects to transmit the report.
   • Any registered fund relying on this order includes a statement on the applicable registered fund’s public website briefly stating that it is relying on this order and the reasons why it could not prepare and transmit its reports on a timely basis; and
   • The registered fund transmits the reports to shareholders as soon as practicable, but not later than 45 days after the original due date and files the report within 10 days of its transmission to shareholders.

   The relief under this section is limited to transmittal obligations for which the original due date is on or after March 13, 2020, but on or prior to April 30, 2020.
   
   

4. Closed-end funds and BDCs are temporarily exempt from the requirement to file with the SEC notices of their intention to call or redeem securities at least 30 days in advance under Sections 23(c) and 63, as applicable, of the Investment Company Act and Rule 23c-2 thereunder if such company files a Form N-23C-2 (Notice) with the SEC fewer than 30 days prior to, including the same business day as, the company’s call or redemption of securities of which it is the issuer where the conditions below are satisfied:
   • The closed-end fund or BDC relying on this order:
     • promptly notifies SEC staff via email at IM-EmergencyRelief@sec.gov stating:
       • that it is relying on this order; and
       • a brief description of the reasons why it needs to file a Notice fewer than 30 days in advance of the date set by the company for calling or redeeming the securities of which it is the issuer;
     • ensures that the filing of the Notice on an abbreviated time frame is permitted under relevant state law and the company’s governing documents; and
     • files a Notice that contains all the information required by Rule 23c-2 prior to:
       • any call or redemption of existing securities;
       • the commencement of any offering of replacement securities; and
       • providing notification to the existing shareholders whose securities are being called or redeemed.

   The relief under this section is limited to the period from and including March 13, 2020, to June 15, 2020. 

Relief Related to the Investment Advisers Act of 1940 (the Investment Advisers Act)

1. A registered investment adviser is exempt from the requirements: (a) under Rule 204-1 of the Investment Advisers Act to file an amendment to Form ADV; and (b) under Rule 204-3(b)(2) and (b)(4) related to the delivery of Form ADV Part 2 (or a summary of material changes) to existing clients;
2. An exempt reporting adviser is exempt from the requirements under Rule 204-4 under the Investment Advisers Act to file reports on Form ADV; and
3. A registered investment adviser that is required by Section 204(b) of and Rule 204(b)-1 under the Investment Advisers Act to file Form PF is exempt from those requirements.

The relief specified in this order is limited to filing or delivery obligations, as applicable, for which the original due date is on or after the date of this order but on or prior to April 30, 2020. Further, the relief specified in this order is subject to the following conditions:

• The registered investment adviser or exempt reporting adviser is unable to meet a filing deadline or delivery requirement due to circumstances related to current or potential effects of COVID-19;
• The investment adviser relying on this order with respect to the filing of Form ADV or delivery of its brochure, summary of material changes, or brochure supplement required by Rule 204-3(b)(2) or (b)(4) under the Investment Advisers Acts, promptly provides the SEC via email at IARDLive@sec.gov and discloses on its public website (or if it does not have a public website, promptly notifies its clients and/or private fund investors of) the following information:
  • that it is relying on this order;
  • a brief description of the reasons why it could not file or deliver its Form on a timely basis; and
  • the estimated date by which it expects to file or deliver the Form.
• Any investment adviser relying on this order with respect to filing Form PF required by Rule 204(b)-1 under the Investment Advisers Act must promptly notify the SEC via email at FormPF@sec.gov stating:
  • that it is relying on this order;
  • a brief description of the reasons why it could not file its Form on a timely basis; and
  • the estimated date by which it expects to file the Form.
• The investment adviser files the Form ADV or Form PF, as applicable, and delivers the brochure (or summary of material changes) and brochure supplement required by Rule 204-3(b)(2) and (b)(4) under the Investment Advisers Act, as soon as practicable, but not later than 45 days after the original due date for filing or delivery, as applicable.

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