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.
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:
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:
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.
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
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:
This relief is conditioned on the following:
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:
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
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.
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.
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:
Laurie A. Dee
 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).
 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.