The staff of the SEC’s Division of Investment Management (the “Division”) issued a new statement (the “Staff Statement”) on May 27, 2020, addressing the intersection between state control share acquisition statutes and the voting requirements contained in section 18(i) of the Investment Company Act of 1940 (the “1940 Act”). The Staff Statement effectively replaces a previous no-action position which addressed how the Maryland Control Share Acquisition Act should be interpreted in light of the requirements of section 18(i) of the 1940 Act.
On April 21, 2020, the U.S. Securities and Exchange Commission (“SEC”) proposed new Rule 2a-5 under the Investment Company Act of 1940 to address valuation practices of registered investment companies. According to the SEC, the Proposed Rule is necessary due to major technological and regulatory changes since the last time the SEC proposed comprehensive valuation rules, a half-century ago.
Despite the disruptive effect of COVID-19, the SEC does not intend to extend the effective dates for compliance with Reg. BI and Form CRS. In addition, the SEC’s Office of Compliance Inspections and Examinations recently announced its intention to begin examinations of registrants’ implementation of these new regulations. Such examinations are expected to occur during the first year after the effective dates. The Financial Industry Regulatory Authority (FINRA) also announced its intent to follow a similar approach with respect to examinations of broker-dealers, focusing on whether firms are making a good faith effort to establish and implement policies and procedures reasonably designed to ensure that a broker-dealer complies with Reg. BI and Form CRS.
On March 30, 2020, the Securities and Exchange Commission (SEC) issued a no-action letter stating that the staff of the SEC’s Division of Trading and Markets would not recommend enforcement actions against broker-dealers that treat unsecured receivables related to bank sweep accounts as an allowable asset that is not deducted from net worth under Rule 15c3-1 (the “Net Capital Rule”). This change should make it easier for broker-dealers to offer cash sweep programs to their customers while continuing to adhere to the requirements of the Net Capital Rule.
On March 25, 2020, the SEC issued exemptive orders replacing prior orders granting temporary relief from certain provisions of the Investment Advisers Act of 1940 (the “Advisers Act”) and the Investment Company Act of 1940 (the “1940 Act”). The SEC said that it has been monitoring developments related to the effect that COVID-19 and related remote work environments have had on the asset management industry. The new orders therefore generally extend previously granted relief by two months and eliminate certain conditions of the prior orders.
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On March 23, 2020, in response to business disruptions caused by the spread of the coronavirus (“COVID-19”), the Securities and Exchange Commission (“SEC”) issued an exemptive order (the “Order”) under the Investment Company Act of 1940 (“1940 Act”) granting registered investment companies and insurance company separate accounts registered as unit investment trusts (“separate accounts”) regulatory flexibility to obtain short term funding by (1) borrowing money from affiliated persons, (2) engaging in interfund lending outside the scope of existing interfund lending orders, and (3) deviating from fundamental policies. The Order provides this relief until at least June 30, 2020, but the SEC may extend the time period if necessary (the “relief period”).
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On March 24, 2020, the Commodity Futures Trading Commission (“CFTC”) issued its final interpretive guidance (the “Interpretation”) concerning the meaning of “actual delivery” in the context of retail commodity transactions involving “virtual currencies.” The Interpretation provides that, in the CFTC’s view, actual delivery of retail commodity transactions in virtual currency has occurred where, within 28 days, (1) a customer has possession and control of the full amount of virtual currency and is able to use it freely and (2) the offeror and counterparty seller do not retain any interest in, legal right or control over the virtual currency. Building on other guidance concerning what constitutes “actual delivery” in the context of retail commodity transactions, the Interpretation provides greater certainty regarding whether retail virtual currency transactions are exempt from CFTC regulation.
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