The US Securities and Exchange Commission on March 13 announced temporary regulatory relief for registered investment advisers and exempt reporting advisers as well as for registered funds, registered unit investment trusts, and business development companies whose operations may be affected by the coronavirus (COVID-19). Most notably, the relief provides up to an additional 45 days for eligible advisers and funds to satisfy relevant filing and delivery requirements, and exempts eligible funds from in-person voting requirements.
In separate orders relating to requirements under the Investment Advisers Act of 1940 (Advisers Act) and the Investment Company Act of 1940 (1940 Act), the Securities and Exchange Commission (SEC) stated that the relief is being offered in recognition of the challenges registered investment advisers and exempt reporting advisers (Advisers) and registered funds, registered unit investment trusts, and business development companies (Funds) may face as a result of COVID-19, including disruptions to transportation and the imposition of quarantines around the world that may limit access to facilities, personnel, and third-party service providers.
The SEC also stated that it will continue to monitor the current situation and may be willing to extend the time period for relief or provide additional relief as circumstances warrant. Additionally, following the orders, the staff of the SEC’s Division of Investment Management (SEC Staff) issued on March 16 frequently asked questions (FAQs) granting additional relief to Advisers relating to Item 1.F of Form ADV and Rule 206(4)-2 of the Advisers Act (Custody Rule) in connection with COVID-19.
Key Elements of the Advisers Act Relief
The relief provided under the Advisers Act (Advisers Act Order) provides up to an additional 45 days for Advisers to satisfy the filing and delivery requirements set forth below, provided that, among other conditions, reliance is necessary or appropriate due to circumstances related to the current or potential effects of COVID-19:
- Amendments to Form ADV required to be filed by registered investment advisers under Rule 204-1 of the Advisers Act or reports required to be filed by exempt reporting advisers on Form ADV part 1A under Rule 204-4
- Amended brochures, brochure supplements, or summaries of material changes required to be delivered by registered investment advisers to clients under Rules 204-3(b)(2) and (b)(4)
- Form PF filings required to be made by registered private fund advisers under Section 204(b) and Rule 204(b)-1 of the Advisers Act
The Advisers Act Order also requires that an Adviser relying on the order promptly provide the SEC via e-mail at IARDLive@sec.gov (with respect to the filing of Form ADV or delivery of its brochure, summary of material changes, or brochure supplement) or at FormPF@sec.gov (with respect to filing Form PF) the following:
- Notice that it is relying on the order
- Brief description of the reasons why it could not make the required filing or delivery, as applicable, on a timely basis
- Estimated date by which the Adviser expects to make the required filing or delivery, as applicable
In addition, an Adviser relying on the Advisers Act Order with respect to the filing of Form ADV or delivery of its brochure, summary of material changes, or brochure supplement must disclose the aforementioned information on its public website (or if it does not have a public website, promptly notify clients and/or private fund investors).
Note: This relief is limited to filing or delivery obligations for which the original due date is on or after the date of the Advisers Act Order but on or prior to April 30, 2020.
Key Elements of the 1940 Act Relief
The relief provided under the 1940 Act (1940 Act Order) (together with the Advisers Act Order, the Orders) includes relief from the in-person board meeting requirements, as well as the filing or transmission requirements, set forth below:
Relief from In-Person Board Meetings
Registered funds and business development companies (BDCs) are relieved from applicable 1940 Act requirements that certain agreements, plans, or arrangements be approved by the company’s board of directors by an in-person vote, due to circumstances related to COVID-19’s current or potential effects, provided that
- the votes that would otherwise be 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 investment fund or BDC, ratifies the action taken pursuant to this exemption by vote cast at the next in-person meeting.
In the 1940 Act Order, the SEC stated that such relief may only be relied on if it is “necessary and appropriate” due to circumstances related to the current or potential effects of COVID-19, and noted that relief may be necessary because COVID-19 may present challenges for boards of registered funds and BDCs to travel in order to meet the in-person voting requirements under the 1940 Act and rules thereunder. Accordingly, registered funds and BDCs should consider including in the minutes of any board meetings held by conference call (or other qualifying means of communication) in reliance on the 1940 Act Order (1) a statement that the non-in-person meeting was determined by the board to be “necessary and appropriate” due to circumstances related to COVID-19, and (2) a summary of the board’s considerations in making such determination.
Note: This relief is currently limited to the period from and including the date of the 1940 Act Order to June 15, 2020. It also follows (1) no-action relief that was issued to the Independent Directors Council in February 2019 providing that the SEC Staff would not recommend enforcement action if Fund boards do not adhere to certain in-person voting requirements in the event of unforeseen or emergency circumstances affecting some or all of the directors, and (2) the SEC Staff’s March 4, 2020 extension of such relief (as a result of the current and potential effects of COVID-19) to cover all approvals and renewals (including material changes) of contracts, plans, or arrangements under Section 15(c) of the 1940 Act or Rules 12b-1 or 15a-4(b)(2) thereunder.
In addition, the relief set forth in the 1940 Act Order was announced on the same day that the staff of the Division of Investment Management and the Division of Corporation Finance issued guidance clarifying flexibility under the federal proxy rules for companies, such as closed-end funds, wishing to effect changes to annual shareholder meetings, including moving from physical locations to virtual or hybrid meetings. Read our March 16 LawFlash on the Division of Corporation Finance guidance.
Relief from Form N-CEN and N-Port Filing Requirements, Annual & Semi-Annual Report Transmittal
The 1940 Act Order also provides up to an additional 45 days for registered funds or unit investment trusts, as applicable, to satisfy the filing and transmittal requirements set forth below, provided that, among other conditions, reliance is necessary or appropriate due to circumstances related to the current or potential effects of COVID-19:
- Form N-CEN filings required to be made by registered funds pursuant to Rule 30a-1 under the 1940 Act
- Form N-PORT filings required to be made by registered funds pursuant to Rule 30b1-9 under the 1940 Act
- Annual and semi-annual reports required to be transmitted by registered funds or unit investment trusts to investors pursuant to Section 30(e) of the 1940 Act and Rule 30e-1 thereunder
This relief is conditioned on the following:
- A registered fund or unit investment trust must promptly provide to the SEC via e-mail (1) notice that it is relying on the 1940 Act Order; (2) a brief description of the reasons why it could not make the required filing or transmittal, as applicable, on a timely basis; and (3) the estimated date by which it expects to make the required filing or transmittal, as applicable.
- A registered fund or unit investment trust must include a statement on its public website briefly stating that it is relying on the 1940 Act Order and the reasons why it could not make the filing or transmittal on a timely basis.
- Any Form N-CEN or Form N-PORT filed pursuant to the 1940 Act Order must include a statement of the registered fund that it relied on the 1940 Act Order and the reasons why it was unable to file such report on a timely basis.
- Any shareholder report transmitted pursuant to the 1940 Act Order must also be filed within 10 days of its transmission to shareholders.
Note: This relief is limited to filing or transmittal obligations for which the original due date is on or after the date of the 1940 Act Order but on or prior to April 30, 2020.
Relief from 30-Day Requirement for Form N-23C-2 Filings
The 1940 Act Order further provides relief for registered closed-end funds and BDCs from the requirement to file a Form N-23C-2 (Notice) at least 30 days prior to calling or redeeming securities, provided that a relying closed-end fund or BDC does the following:
- Promptly provides to the SEC via e-mail (1) a statement that it is relying on the 1940 Act Order, and (2) a brief description of the reasons why it needs to file a Notice fewer than 30 days in advance of the date set for calling or redeeming the securities
- Ensures that the filing of the Notice on an abbreviated timeframe is permitted under relevant state law and applicable governing documents
- Files a Notice that contains all the information required by Rule 23c-2 prior to (1) any call or redemption of existing securities, (2) the commencement of any offering of replacement securities, and (3) notification to the existing shareholders whose securities are being called or redeemed
In the 1940 Act Order, the SEC stated that such relief may be necessary because registered closed-end funds and BDCs may seek to call or redeem securities in light of recent market movements and may face challenges in providing the advance notice required under Rule 23c-2.
Note: This relief is limited to the period from and including the date of the 1940 Act Order to June 15, 2020.
Statement Regarding Prospectus Delivery
In addition to the relief described above, the SEC also took the position in the 1940 Act Order that it would not provide a basis for an SEC enforcement action if a registered fund does not deliver to investors its current prospectus in instances where the prospectus is not able to be timely delivered because of circumstances related to COVID-19, provided that
- the sale of shares to the investor was not an initial purchase of shares of the registered fund by the investor;
- the registered fund provides to the SEC via e-mail (1) a statement that it is relying on this position, (2) a brief description of the reasons why it or any other required person could not deliver the prospectus to investors on a timely basis, and (3) the estimated date by which it expects the prospectus to be delivered;
- the registered fund publishes on its public website that it intends to rely on this position and briefly states the reasons why it could not deliver the prospectus on a timely basis; and
- the registered fund publishes its current prospectus on its public website.
Note: Reliance on this position is limited to prospectus deliveries that were originally required on or after the date of the 1940 Act Order but on or prior to April 30, 2020, and that are ultimately made to investors as soon as practicable but no later than 45 days after the date originally required.
Following the Orders, on March 16, 2020, the SEC Staff issued two FAQs granting additional relief to Advisers in connection with COVID-19. Specifically, the SEC Staff issued a FAQ indicating that Advisers are not required to update either Item 1.F of Part 1A of Form ADV or Section 1.F of Schedule D to include temporary teleworking addresses of its employees so long as the employees are temporarily teleworking as part of the firm’s business continuity plan due to COVID-19. In addition, the SEC Staff updated Custody Rule FAQ II.1., stating that to the extent an Adviser inadvertently receives funds or securities from clients at an office location that is temporarily closed due to the firm’s business continuity plan in response to COVID-19, the SEC Staff would not consider the Adviser to have received client assets until firm personnel are able to access the mail or deliveries at that office location.
Additional Areas of Relief
In both Orders, the SEC stated that it intends to continue monitoring the COVID-19 situation as it relates to Funds and Advisers, and that it may be willing to extend the time period for relief, with any additional conditions it deems appropriate, or provide additional relief as necessary or appropriate. We will continue to monitor developments relating to the current relief and would expect additional relief in other related areas may be announced as the situation regarding COVID-19 evolves. We are also happy to engage with the SEC Staff on particular areas of concern for our clients.
As discussed in the SEC’s press release, the relief set forth in the Orders is designed to enable Funds and Advisers to meet their regulatory obligations and to continue their operations despite temporary disruptions relating to COVID-19 that are outside of their control.
Funds and Advisers should consider whether the relief set forth in the Orders will be necessary to their businesses in light COVID-19’s current or potential effects, and if so, prepare to satisfy the conditions of the relief, including, where applicable, the requirements for a Fund or Adviser to notify the SEC Staff of the intention to rely upon the applicable order and to disclose information on its website about its reliance upon such order.
In addition, an Adviser should consider whether coordination with affiliated advisers or managed account program sponsors that distribute reports and other materials on behalf of the Adviser will be necessary to satisfy these conditions and meet the extended compliance deadlines permitted under the applicable order.
For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. Please check this resource page for additional information and the latest updates on the SEC’s response to COVID-19, as well as guidance from our lawyers relating to employment matters, data privacy concerns, supply chain disruption, immigration status requirements, remote work opportunities and challenges, and ongoing federal and state updates.
 Order Under Section 206A of the Investment Advisers Act of 1940 Granting Exemptions from Specified Provisions of the Investment Advisers Act and Certain Rules Thereunder, Investment Advisers Act Rel. No. 5463 (Mar. 13, 2020).
 Order under Section 6(C) and Section 38(A) of the Investment Company Act of 1940 Granting Exemptions from Specified Provisions of the Investment Company Act and Certain Rules Thereunder; Commission Statement Regarding Prospectus Delivery, Investment Company Act Rel. No. 33817 (Mar. 13, 2020).
 FAQ on Item 1.F of Form ADV and FAQ on the Custody Rule (Question II.1).
 Independent Directors Council, SEC No-Action Letter (Feb. 28, 2019.
 Division of Investment Management’s statement regarding the extension of the Independent Directors Council no-action letter. Similar to the relief provided in the 1940 Act Order relating to non-in-person board meetings, the Division of Investment Management limited its position to board meetings to be held through June 15, 2020.
 Guidance from Division of Investment Management and Division of Corporation Finance on annual meetings.