On March 13, 2020, in light of business disruptions resulting from the spread of the coronavirus (COVID-19) and current actions by registrants to protect the health of their employees, clients and the public, the SEC proactively granted relief from certain routine regulatory deadlines and other requirements applicable to investment advisers and registered funds. The SEC extended relief to those advisers and funds whose ability to meet certain requirements is adversely affected by the COVID-19 pandemic.
The SEC recognizes that the outbreak of COVID-19 has resulted in disruptions to transportation and the imposition of quarantines worldwide, which may limit investment advisers’ access to their facilities and personnel. Third-party service providers may be similarly limited. As a result, investment advisers may face difficulty in timely satisfying certain provisions of the Investment Advisers Act of 1940 (the “Advisers Act”) and the rules thereunder related to the filing and delivery of certain reports and disclosures.
The SEC therefore granted exemptions to registered investment advisers and exempt reporting advisers until April 30, 2020, from the following filing obligations and delivery requirements under the Advisers Act:
- filing an amendment to Form ADV under Rule 204-1 of the Advisers Act;
- delivering a brochure (Form ADV Part 2) or a summary of material changes to Form ADV Part 2 to existing clients as required by Rules 204-3(b)(2) and (b)(4) under the Advisers Act;
- exempt reporting advisers’ filing of reports on Form ADV as required by Rule 204-4 under the Advisers Act; and
- filing Form PF under Section 204(b) of and Rule 204(b)-1 under the Advisers Act.
These exemptions apply only to advisers that meet the following conditions:
- the adviser is unable to meet a filing deadline or delivery requirement due to circumstances related to current or potential effects of COVID-19;
- an adviser relying on the order with respect to the filing of Form ADV or delivery of its brochure, summary of material changes, or brochure supplement must promptly provide to the SEC via email (IARDLive@sec.gov) and disclose on its public website (or if it does not have a public website, promptly notify its clients and/or private fund investors of) the following information:
- that it is relying on the relief contained in the order;
- a brief description of the reasons why it could not file or deliver its Form ADV, brochure, summary of material changes or brochure supplement on a timely basis; and
- the estimated date by which the adviser expects to file or deliver the Form ADV, brochure, summary of material changes or brochure supplement; and
- any adviser relying on the Form PF aspect of the order must promptly notify the SEC via email (FormPF@sec.gov) stating:
- that it is relying on the order;
- a brief description of the reasons why it could not file its Form PF on a timely basis; and
- the estimated date by which it expects to file the Form PF.
An adviser relying on the Advisers Act relief must file its Form ADV or Form PF, as applicable, and deliver the brochure (or summary of material changes) and brochure supplement as soon as practicable, but no later than 45 days after the original due date for filing or delivery, as applicable.
The SEC recognizes that COVID-19 may present challenges for boards of trustees of registered funds and business development companies (BDCs) who must travel in order to meet certain in‑person voting requirements under the 1940 Act and its related rules. The SEC also recognized that registered funds and unit investment trusts (UITs) may face difficulties making certain required filings or timely delivering their prospectuses if their personnel or personnel employed by third-party service providers who are necessary to prepare, file and deliver such reports become unavailable, or are only available on a limited basis. The SEC also noted that, as a result of recent market movements, certain registered closed-end funds and BDCs may seek to call or redeem securities and may face difficulties providing the advance notice required under Rule 23c-2 under the 1940 Act.
Consequently, the SEC granted the following temporary exemptions to registered funds, BDCs and UITs:
- Until June 15, 2020, a registered fund or BDC, and any investment adviser of or principal underwriter for that fund or BDC, is exempt from the in-person voting requirements related to approval or renewal of investment advisory and sub-advisory agreements, approval of a fund or BDC’s independent auditor, or approval of distribution agreements and Rule 12b-1 plans, provided that:
- reliance on the 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 trustees may participate by any means of communication that allows all participating trustees to hear each other simultaneously during the meeting; and
- the board of trustees, including a majority of the trustees who are not “interested persons” of the fund or BDC, ratifies the action taken pursuant to this exemption by votes cast at their next in-person meeting.
- Until June 15, 2020, registered closed-end funds and BDCs are temporarily exempt from the requirement to file with the SEC a notice of intention to call or redeem their securities on Form N-23C-2 under the 1940 Act, provided that the fund or BDC relying on the 1940 Act relief:
- promptly notifies the SEC staff via email at (IM-EmergencyRelief@sec.gov) stating:
- that it is relying on the 1940 Act relief; 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 board of the fund or BDC for calling or redeeming its securities;
- ensures that the filing of the notice on an abbreviated time frame is permitted under relevant state law and its governing documents; and
- files a notice that contains all of the information required by Rule 23c-2 under the 1940 Act 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.
- Until April 30, 2020, a registered fund that is required to file Form N-CEN pursuant to Rule 30a-1 under the 1940 Act, or Form N-PORT pursuant to Rule 30b1-9 under the 1940 Act, is temporarily exempt from such form filing and the transmittal of annual and semi-annual reports to its investors, provided that:
- the registered fund is unable to meet a filing deadline due to circumstances related to current or potential effects of COVID-19;
- a registered fund relying on the 1940 Act relief must promptly notify the SEC staff via email (IM-EmergencyRelief@sec.gov) stating:
- that it is relying on the 1940 Act relief;
- 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; and
- the registered fund relying on the 1940 Act relief must include a statement on its public website briefly stating that it is relying on the 1940 Act relief and the reasons why it could not file its reports on a timely basis.
A registered fund that relies on the 1940 Act relief to delay its required filing of Form N-CEN or Form N-PORT must file 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 in reliance on the 1940 Act relief must include a statement that the registered fund relied on the 1940 Act relief and the reasons why it was unable to file such report on a timely basis.
The SEC, like other federal and state regulators, will continue monitoring the current situation and may, if necessary, extend the time period for any of the relief granted in the Advisers Act relief or the 1940 Act relief. Registrants should consider the need to rely on the relief provided in these two orders, and the need to publicly disclose their decision to do so. In particular, investment advisers that rely on the Advisers Act relief and boards that rely on the 1940 Act relief should take into account their fiduciary duties under the federal securities laws and/or state laws when making this decision.