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SEC Extends and Amends Conditions for Relief for Funds and Advisers Impacted by COVID-19

March 31, 2020

Two orders from the US Securities and Exchange Commission amend previous regulatory relief for certain investment advisers and investment funds affected by the coronavirus (COVID-19), provide such investment advisers and investment funds with more time to satisfy certain filing and delivery requirements, and extend the relief from requirements to hold in-person board meetings.

In separate orders relating to requirements under the Investment Advisers Act of 1940 (Advisers Act)[1] and the Investment Company Act of 1940 (1940 Act),[2] the US Securities and Exchange Commission (SEC) stated that it has been monitoring the effects of COVID-19 since it issued its previous orders for relief on March 13 (Original Orders)[3] and is now superseding and extending the exemptions covered by the Original Orders, with certain modifications, in light of its current understanding of the circumstances and the challenges that investment funds, investment advisers, and other market participants continue to face in timely meeting the requirements of the federal securities laws addressed in the Original Orders.

This LawFlash addresses updates to the SEC relief that was addressed in our March 17 LawFlash regarding the Original Orders. Information regarding other related developments can be found on our resource page.[4] We will continue to provide updates regarding additional relief and guidance published by the SEC in the days to come as additional relief and guidance is published.

Key Elements of the Amended Advisers Act Relief

The previous relief provided under the Advisers Act (Original Advisers Act Order) provided up to an additional 45 days for registered investment advisers and exempt reporting advisers (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 Original Advisers Act Order also required that an Adviser relying on the order promptly advise the SEC via email at IARDLive@sec.gov and disclose on its public website[5] (with respect to the filing of Form ADV or delivery of its brochure, summary of material changes, or brochure supplement), or promptly provide the SEC via email at FormPF@sec.gov (with respect to filing Form PF) the information set forth below. The Original Advisers Act Order also limited relief to filing or delivery obligations for which the original due date was on or after the date of the Original Advisers Act Order but on or prior to April 30, 2020. The information required to be provided by an Adviser consists of 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

The amended relief (Amended Advisers Act Order) retains the notice requirement set forth above but removes the conditions that an Adviser describe why it could not make the required filing or delivery and estimate a date by which the Adviser expects to make the required filing or delivery. The Amended Advisers Act Order also extends the timing for filing or delivery obligations for which the original due date is on or after the date of the Original Advisers Act Order but on or prior to June 30, 2020.

Key Elements of the Amended 1940 Act Relief

Relief from In-Person Board Meetings Requirement

The previous relief provided under the 1940 Act (Original 1940 Act Order) relieved registered management investment companies and business development companies (BDCs) from applicable 1940 Act requirements that certain agreements, plans, or arrangements be approved by a 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 one another 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 Original 1940 Act Order also limited relief to the period from and including the date of the Original 1940 Act Order to June 15, 2020.[6] In the Original 1940 Act Order, the SEC further stated that such relief may only be relied on if it is “necessary or 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 management investment companies and BDCs to travel in order to meet the in-person voting requirements under the 1940 Act and rules thereunder.

The amended relief (Amended 1940 Act Order) (together with the Amended Advisers Act Order, the Amended Orders) retains the requirements set forth above, including the requirement that such relief may only be relied on if it is “necessary or appropriate,”[7] but extends the timing of the relief to the period from and including the date of the Original 1940 Act Order to August 15, 2020.

Relief from Form N-CEN and N-Port Filing Requirements; Annual and Semi-Annual Report Transmittal

The Original 1940 Act Order also provided up to an additional 45 days for registered management investment companies or unit investment trusts (Registered Funds) (together with BDCs, Funds), 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 pursuant to Rule 30a-1 under the 1940 Act
  • Form N-PORT filings required to be made pursuant to Rule 30b1-9 under the 1940 Act
  • Annual and semi-annual reports required to be transmitted to investors or unitholders, as applicable, pursuant to Section 30(e) of the 1940 Act and Rule 30e-1 or Rule 30e-2 thereunder, as applicable

The relief set forth in the Original 1940 Act Order was conditioned on the requirements set forth below:

  • A Registered Fund must promptly provide to the SEC via email at IM-EmergencyRelief@sec.gov (1) notice that it is relying on the Original 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 must include a statement on its public website briefly stating that it is relying on the Original 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 Original 1940 Act Order must include a statement of the Registered Fund that it relied on the Original 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 Original 1940 Act Order must also be filed within 10 days of its transmission to shareholders.

The Original 1940 Act Order also limited relief to filing or transmittal obligations for which the original due date was on or after the date of the Original 1940 Act Order but on or prior to April 30, 2020.

The Amended 1940 Act Order removes the conditions that a Registered Fund (1) describe, in its email correspondence to the SEC or on its website, the reasons why it could not make the required filing or transmittal, as applicable, on a timely basis, and (2) estimate a date by which the Registered Fund expects to make the required filing or transmittal, as applicable. The Amended 1940 Act Order also extends the timing to filing or transmittal obligations for which the original due date is on or after the date of the Original 1940 Act Order but on or prior to June 30, 2020.

Relief from 30-Day Requirement for Form N-23C-2 Filings

The Original 1940 Act Order further provided 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 Registered Closed-End Fund or BDC does the following:

  • Promptly provides to the SEC via email at IM-EmergencyRelief@sec.gov (1) a statement that it is relying on the Original 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

The Original 1940 Act Order also limited relief to the period from and including the date of the Original 1940 Act Order to June 15, 2020.

The Amended 1940 Act Order removes the condition that a Registered Closed-End Fund or BDC describe, in its email correspondence to the SEC, 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. The Amended 1940 Act Order also extends the relief to the period from and including the date of the Original 1940 Act Order to August 15, 2020.

Statement Regarding Prospectus Delivery

In addition to the relief described above, the SEC also took the position in the Original 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 email at IM-EmergencyRelief@sec.gov (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 or any other required person could not deliver the prospectus on a timely basis; and
  • the Registered Fund publishes its current prospectus on its public website.

Reliance on this position was also limited to prospectus deliveries that were originally required on or after the date of the Original 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.

The Amended 1940 Act Order removes the conditions that a Registered Fund (1) describe, in its email correspondence to the SEC or on its website, the reasons why it or any other required person could not deliver the prospectus to investors on a timely basis, or (2) estimate a date by which it expects the prospectus to be delivered. The Amended 1940 Act Order also extends reliance on this position to prospectus deliveries that were originally required on or after the date of the Amended 1940 Act Order but on or prior to June 30, 2020.

FAQs

Following the Original 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 an 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 their 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 Amended 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 further 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 to 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.

Conclusion

As discussed in the SEC’s press release in connection with the Original Orders, the relief set forth in the Original 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. The Amended Orders supersede and extend the filing periods and amend the conditions set forth in the Original Orders in light of the SEC’s evolving understanding of the nationwide scope of COVID-19’s disruptions to businesses and everyday activities, and the uncertainty regarding the duration of such disruptions.

Funds and Advisers should consider whether the relief set forth in the Amended 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.

Coronavirus COVID-19 Task Force

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, which includes a Financial Services COVID-19 Task Force to focus on the issues specifically impacting our financial services industry clients.

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. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Boston
Lea Anne Copenhefer
Barry N. Hurwitz
Roger P. Joseph
Jeremy B. Kantrowitz
Paul B. Raymond
Toby R. Serkin

Washington, DC
Laura E. Flores
Thomas S. Harman
W. John McGuire
Christopher D. Menconi
Steven W. Stone
Monica L. Parry
Brian J. Baltz

Philadelphia
Sean Graber
Timothy W. Levin
John J. O’Brien
David W. Freese
Brian T. London
Christine M. Nassauer

New York
Christine M. Lombardo
Elizabeth L. Belanger
Robert Raghunath
Ellen G. Weinstein

Orange County
Laurie A. Dee



[1] 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. 5469 (Mar. 25, 2020).

[2] 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. 33824 (Mar. 25, 2020).

[3] 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). The Staff of the SEC’s Division of Investment Management (SEC Staff) also 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.[3]

[4] For instance, the SEC issued a temporary exemptive order on March 23, 2020 providing exemptions from a number of provisions of the 1940 Act allowing for (1) enhancements to existing interfund lending (IFL) exemptive orders, (2) the ability of funds without existing IFL orders to rely on recent IFL precedent, and (3) deviation from policies in registration statements. See our March 25 LawFlash, COVID-19 Market Impact: SEC Provides Short-Term Funding, Affiliated Purchase Flexibility to Funds.

[5] Or if it does not have a public website, promptly notify clients and/or private fund investors.

[6] The relief set forth in the Original 1940 Act Order also followed (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 boards of registered management investment companies or BDCs 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 Original 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, COVID-19: SEC Division of Corporation Finance Issues Guidance on Annual Meetings.

[7] Accordingly, registered management investment companies 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 Amended 1940 Act Order (1) a statement that the non–in-person meeting was determined by the board to be “necessary or appropriate” due to circumstances related to COVID-19, and (2) a summary of the board’s considerations in making such determination.