On September 20, 2023, the US Securities and Exchange Commission (SEC) voted by a 4-1 margin to adopt amendments to the fund “Names Rule” (Rule 35d-1) under the Investment Company Act of 1940. The amendments greatly expand the scope of the rule, but relax some of the compliance requirements that were originally proposed.

• Consistent with the proposal, the final amendments expand the scope of the rule to require funds with names that suggest a focus in investments that have, or issuers that have, “particular characteristics” to adopt an 80% investment policy.
• The final amendments retain the rule’s original language requiring funds to comply with their 80% policies “under normal circumstances” and “at the time of investment,” but add a requirement that funds must review compliance with their 80% policies no less frequently than quarterly, in lieu of the continuous monitoring that was proposed.

In a departure from the proposal, the final amendments do not require unlisted closed-end funds and BDCs to adopt their 80% policies as fundamental policies, rather, the amended rule states that such funds may not change their policies without a majority shareholder vote, unless the fund conducts a tender offer prior to the change, provides notice of the change prior to the tender offer, shares are repurchased at net asset value, and the tender offer is not oversubscribed.

Read more here.

From Brian Rubin in NSCP Currents: 

During this year’s annual FINRA conference, a panel of officials announced that in connection with retaining and supervising electronic messages, firms might have to begin reviewing emojis to determine whether they constitute reportable customer complaints.

FINRA’s proclamation appears to be problematic for firms. First, FINRA didn’t announce whether technology exists to find, let alone, translate emojis.  Second, emojis are constantly being added.  Finally, the meaning of emojis depends on context and the “space-time continuum,” including the generation bracket of the sender and recipient.  For example, the thumbs up emoji 👍used to mean, “good job,” but for Gen Z-ers, it’s more of an insult about something you botched, rather than a positive sign, and sometimes it means, “sure, whatever” in response to something you’ve said.  Without industry consultation about these issues, it’s easy to predict what will happen next: 😡.

Read more here.

SEC 40 Act lawyers and those in the ESG space will want to take note of Commissioner Uyeda’s speech published on Jan 27 (SEC.gov | ESG: Everything Everywhere All at Once) in which he lays out an adviser’s fiduciary duty as a battleground for future discussion about ESG investments.  Uyeda says “… an adviser can only pursue an ESG investment strategy if the client expresses a desire to pursue such a strategy after receiving full and fair disclosure regarding the salient features of the strategy, including the strategy’s risk and return profile.” It will be interesting to see if Chair Gensler looks for an opportunity to respond to Uyeda’s remarks.  Don’t be surprised if we see remarks by Chair Gensler that address an adviser’s duty more generally and not just in connection with established an ESG investment strategy. Maybe something along the lines of yes, an adviser can only pursue an ESG investment strategy where a client expresses such a desire, but as a general matter all advisers should be at least considering ESG factors as they do other important data points when making an investment.  Lots more to come……

On October 26, 2022, the Securities and Exchange Commission (SEC) proposed new Rule 206(4)-11 under the Investment Advisers Act of 1940 (Advisers Act), which would prohibit SEC-registered investment advisers from outsourcing certain services or functions to service providers without meeting minimum requirements. At the same time, the SEC also proposed certain related amendments to Rule 204-2 under the Advisers Act and Form ADV.

Proposed Rule 206(4)-11 (Proposed Rule) would require investment advisers to conduct due diligence prior to engaging a service provider to perform certain services or functions. It would further require advisers to periodically monitor the performance and reassess the retention of the service provider in accordance with due diligence requirements to reasonably determine that it is appropriate to continue to outsource those services or functions to that service provider.

Read more here.