Legal Alert

SEC Division of Investment Management Issues Communication for Mutual Fund Boards

March 13, 2020

Investment companies’ boards may have upcoming meetings that were planned anticipating in-person attendance, yet the spread of coronavirus (COVID-19) may alter travel plans. The Securities and Exchange Commission (SEC) Division of Investment Management (the Division) has issued communication that guides investment companies’ boards through these situations.

On February 28, 2019, the Division staff issued a non-action letter to the Independent Directors Council (IDC). It provides that the 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. 

As a result of the current and potential effects of COVID-19, on March 4, 2020, the Division staff extended the no-action position expressed in the IDC letter with respect to unforeseen or emergency circumstances to cover all approvals and renewals (including material changes) of contracts, plans, or arrangements under section 15(c) or rules 12b-1 or 15a-4(b)(2), as well as the selection of a fund’s independent public accountant pursuant to Section 32(a) where such accountant is not the same accountant as selected in the immediately preceding fiscal year.

The relief includes the approval of new investment advisory agreements for a new fund or a new sub-adviser, which were not covered in the IDC letter in the case of unforeseen or emergency circumstances.

This position applies to board meetings held between March 4, 2020, and June 15, 2020. The Division staff may extend the time period for this no-action position as circumstances warrant, with any additional conditions deemed appropriate.

Consistent with the IDC letter, this position is conditioned on board ratification of these actions at the next in-person board meeting.

In addition, as investment advisers and funds plan and prepare for any potential impacts, the Division encourages them to evaluate their business continuity plans and valuation procedures, among other relevant policies, procedures and systems.

Ballard Spahr’s Investment Management Group is actively monitoring the current and potential effects of COVID-19 on investment advisers and funds and can advise on regulatory compliance and transactional matters.

Copyright © 2020 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

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