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Division of Investment Management Coronavirus (COVID-19) Response FAQs

April 14, 2020

The staff of the Division of Investment Management has prepared the following responses to questions about funds, advisers, and certain institutional investment managers that file Form 13F affected by COVID-19. These responses represent the views of the staff of the Division. They are not a rule, regulation, or statement of the Securities and Exchange Commission (“SEC”). The SEC has neither approved nor disapproved this content. These responses, like all staff guidance, have no legal force or effect: they do not alter or amend applicable law, and they create no new or additional obligations for any person.

For additional information concerning the SEC’s response to COVID-19, please see the information available here.

I. Contacting the Division of Investment Management

Question I.1.

Q.  How should a fund, SEC-registered investment adviser or exempt reporting adviser contact the staff if it has questions or concerns related to impacts of COVID-19 on its operations or compliance?

A.  For questions regarding Form ADV, including related questions about temporary relief the SEC has provided, please email IARDLive@sec.gov.

For questions regarding Form PF, including related questions about temporary relief the SEC has provided, please email FormPF@sec.gov.

For questions regarding Form N-LIQUID, please email IM-N-LIQUID@sec.gov and also contact: Tim Husson, Associate Director, at (202) 551-6803 and Jon Hertzke, Assistant Director, at (202) 551-6247.

For general questions or concerns related to impacts of COVID-19 on the operations or compliance of funds and advisers, including questions about temporary relief the SEC has provided, please email IM-EmergencyRelief@sec.gov.

Question I.2.

Q.  How should an institutional investment manager that should file Form 13F contact the staff if it has questions or concerns related to impacts of COVID-19 on its operations or compliance?

A.  For questions regarding Form 13F confidential treatment requests for the quarter ended March 31, 2020, including questions regarding whether requests can be submitted electronically, please e-mail IM-EmergencyRelief@sec.gov. (Posted May 8, 2020)

II. Investment advisers

Question II.1.

Q.  Has the SEC provided any relief for registered investment advisers and exempt reporting advisers affected by COVID-19?

A.  Yes.  On March 13, 2020, the SEC issued an order providing the relief described below.  On March 25, 2020, the SEC issued a new order (Advisers Act Release No. 5469) that superseded the original order and extended the period for which the relief is available.  Subject to the conditions of the order, it provides temporary exemptive relief from the deadlines for certain filing or delivery obligations:

  • For registered investment advisers and exempt reporting advisers affected by COVID-19, the requirements to file an amendment to Form ADV Parts 1 and 2 or file reports on Form ADV part 1A, respectively.
  • For registered investment advisers affected by COVID-19, the requirements to deliver amended Form ADV Part 2 brochures, brochure supplements or a summary of material changes to existing clients where the disclosures are not able to be timely delivered because of circumstances related to COVID-19.
  • For private fund advisers affected by COVID-19, the requirement to file Form PF.

In each case, the filing or delivery obligation would need to be satisfied as soon as practicable but no later than 45 days after the original due date.

In addition, the SEC has adopted a temporary final rule to provide relief from the Form ID notarization process for certain filers.  See Securities Act Release No. 10768.

The relief described above is time-limited.  Please refer to the SEC releases for details on the periods for which relief is available.

Question II.2.

Q.  Will SEC staff view an adviser’s reliance on the temporary relief provided in response to COVID-19 as a risk factor for examining the adviser’s business continuity plans?

A.  The Office of Compliance Inspections and Examinations (OCIE) recently stated that it “is fully aware of the regulatory relief that was provided to registrants in response to COVID-19” and that, “reliance on regulatory relief will not be a risk factor utilized in determining whether OCIE commences an examination.  We encourage registrants to utilize available regulatory relief as needed.” See OCIE Statement on Operations and Exams – Health, Safety, Investor Protection and Continued Operations are our Priorities, available here.

Question II.3.

Q.  Has the Division of Investment Management provided any guidance for advisers affected by COVID-19?

A.  Yes.  The Division of Investment Management has issued several new and updated FAQs, and advisers may also find useful some of the Division’s existing FAQs. For example:

  • Form ADV requirements:
    • New FAQ addressing whether an adviser is required to update Form ADV Item 1.F in order to list the temporary teleworking addresses of its employees, available here.
  • Custody rule requirements:
    • Updated FAQ regarding inadvertent receipt of client securities when an adviser’s personnel may be unable to access mail or deliveries (Question II.1), available here.
    • Updated FAQ addressing compliance when a pooled investment vehicle fails to distribute its audited financial statements by the applicable deadline due to certain unforeseeable circumstances (Question VI.9), available here. (Modified April 27, 2020)
    • New FAQ regarding inability to complete surprise examinations (Question IV.7), available here.
    • New FAQ regarding custody of certain privately issued securities that are evidenced by physical certificates (Question VII.4), available here.

Question II.4.

Q.  I am a small advisory firm that meets the requirements of the Paycheck Protection Program (PPP) established by the U.S. Small Business Administration in connection with COVID-19. If I receive or have received a PPP loan, what are my regulatory reporting obligations under the Investment Advisers Act of 1940 to my firm’s clients?

A.  As a fiduciary under federal law, you must make full and fair disclosure to your clients of all material facts relating to the advisory relationship. If the circumstances leading you to seek a PPP loan or other type of financial assistance constitute material facts relating to your advisory relationship with clients, it is the staff’s view that your firm should provide disclosure of, for example, the nature, amounts and effects of such assistance. If, for instance, you require such assistance to pay the salaries of your employees who are primarily responsible for performing advisory functions for your clients, it is the staff’s view that you would need to disclose this fact. In addition, if your firm is experiencing conditions that are reasonably likely to impair its ability to meet contractual commitments to its clients, you may be required to disclose this financial condition in response to Item 18 (Financial Information) of Part 2A of Form ADV (brochure), or as part of Part 2A, Appendix 1 of Form ADV (wrap fee program brochure). (Posted April 27, 2020)

Question II.5.

Q.  My firm is an SEC-registered investment adviser that participates in a wrap fee program (a “participating adviser”). The participating adviser has contracted with the wrap fee program sponsor to deliver Form ADV Part 2 (or a summary of material changes), as applicable (“Brochure”), to clients of the wrap fee program. The sponsor has notified us that it is unable to deliver the Brochure to our existing wrap fee program clients by the delivery deadline due to circumstances related to current or potential effects of COVID-19. In this regard, the participating adviser would like to take advantage of the Commission’s March 25, 2020, order (Advisers Act Release No. 5469) (“Order”) granting certain temporary exemptive relief to registered investment advisers from the deadline for Brochure delivery. What steps should a participating adviser and a wrap fee program sponsor take to satisfy the requirements in the Order that the adviser notify its clients and the Commission when relying on the Order?

A.  To rely on the temporary relief, an adviser must satisfy the conditions described in the Order. These conditions include that the adviser relying on the Order “promptly notifies the Commission staff via email at IARDLive@sec.gov and discloses on its public website (or if it does not have a public website, promptly notifies its clients and/or private fund investors) that it is relying” on the Order. A participating adviser and wrap fee program sponsor should consider the following when seeking to satisfy these notice and disclosure requirements:

  • Disclosure to clients. To rely on the Order, the participating adviser must disclose on its public website (or if it does not have a public website, provide notice as described in the Order) that it is relying on the Order. In the case of clients that primarily or exclusively interact with the participating adviser through the wrap fee program sponsor, the staff believes the sponsor should also consider posting on its public website notice that the participating adviser is relying on the Order to further inform existing clients regarding the availability of updated Brochure disclosures.
  • Notice to Commission staff. The Order also requires the participating adviser to notify the Commission staff via email that it is relying on the Order. In the staff’s view, a wrap fee program sponsor could promptly notify Commission staff via email on the participating adviser’s behalf that the participating adviser is relying on the Order if, in its email to Commission staff, the sponsor identifies each individual participating adviser that is relying on the Order and represents that it has authority to submit the email on behalf of those participating advisers. If the participating adviser is also relying on the Order with respect to any clients for which the sponsor is not contractually obligated to deliver the Brochure, the participating adviser would need to separately satisfy this notice condition.

Consistent with the Order, the participating adviser’s Brochure must be delivered to existing clients as soon as practicable, but not later than 45 days after the original due date. The relief provided in the Order is time-limited. Please refer to the Order for details on the period for which relief is available. (Posted April 27, 2020)

III. Investment companies

Question III.1.

Q.  Has the SEC provided any relief for registered investment companies and business development companies (“BDCs”) affected by COVID‑19?

A.  Yes.  The SEC has issued several orders providing temporary relief to registered investment companies and BDCs affected by COVID-19, as described below.  The relief described in this response is time-limited.  Please refer to the SEC releases for details on the periods for which relief is available.

In-person board meetings and certain filing, transmittal and delivery obligations

On March 13, 2020, the SEC issued an order providing the relief described below.  On March 25, 2020, the SEC issued a new order that superseded the original order and extended the period for which the relief is available.  Subject to the conditions of the order, it provides temporary exemptive relief from the following obligations:

  • For registered management investment companies, BDCs, and any investment adviser or principal underwriter of such companies, in circumstances related to the current or potential effects of COVID-19, the Investment Company Act sections and rules that require certain agreements, plans or arrangements be approved by the company’s board of directors by an in-person vote.
  • For registered management investment companies and unit investment trusts affected by COVID-19, the Form N-CEN and Form N-PORT filing deadlines.
  • For registered management investment companies and unit investment trusts affected by COVID-19, the annual and semi-annual report transmittal deadlines.
  • For registered closed-end investment companies and BDCs, the requirement to file Form N-23C-2 at least 30 days prior to calling or redeeming securities.

The SEC also addressed, in the order, delivery to existing investors of the current prospectus of a registered fund where the prospectus is not able to be timely delivered because of circumstances related to COVID-19, where the sale of shares to the investor was not an initial purchase and subject to the other conditions described in the order.  The order did not, however, provide relief from prospectus filing requirements or for delivery to new investors.  In this regard, the Division of Investment Management recently reminded investment company issuers of their obligations under section 10(a)(3) of the Securities Act of 1933 to update the information in their prospectuses, including the required underlying certified financial statements.  To the extent that an investment company is unable to make certain filings or meet other requirements because of disruptions caused by COVID-19, the investment company should engage with the Division of Investment Management.  Please see above for ways to contact the Division.

Each of the filing, transmittal and delivery obligations described above would need to be satisfied as soon as practicable but no later than 45 days after the original due date.

On March 13, 2020, the SEC issued an order providing temporary relief for issuers (including investment companies) from the requirement to furnish certain proxy soliciting materials and information materials in areas where the common carrier has suspended delivery service and the other conditions in the order are satisfied.  On March 25, 2020, the SEC extended the period for which the relief is available in a new order that superseded the original order.

Temporary additional funding flexibility

On March 23, 2020, the SEC issued an order providing additional temporary flexibility to obtain short-term funding to (1) registered open-end management investment companies other than money market funds (“open-end funds”) and (2) insurance company separate accounts registered as unit investment trusts (“separate accounts”).  Subject to the conditions in the order, it provides the following temporary exemptive relief from the Investment Company Act of 1940:

  • Relief permitting registered open-end funds and insurance company separate accounts to borrow money from certain affiliates.
  • Relief that permits additional flexibility under existing interfund lending arrangements and extends the ability to use interfund lending arrangements to funds that do not currently have exemptive relief.
  • Relief that permits registered open-end funds to enter into lending arrangements or borrowings that deviate from fundamental policies, subject to prior board approval.

Temporary additional flexibility for BDCs

On April 8, 2020, the SEC issued an order providing additional temporary flexibility for BDCs to issue and sell senior securities and participate in certain joint enterprises or other joint arrangements that would otherwise be prohibited by Section 57(a)(4) of the Investment Company Act and Rule 17d-1 thereunder.  Subject to the conditions in the order, it provides the following temporary relief:

  • Exemptive relief from certain asset coverage requirements under Sections 18(a)(1)(A) and 18(a)(2)(A) of the Investment Company Act, as modified for BDCs by Sections 61(a)(1) and 61(a)(2), and the requirement of Section 18(b) of the Investment Company Act to determine asset coverage on the basis of values calculated as of a time within forty-eight hours next preceding the time of such determination, with regard to the issuance and sale of senior securities by BDCs.
  • Expanded relief from Sections 17(d) and 57(a)(4) of the Investment Company Act and Rule 17d-1 thereunder for BDCs that have existing co-investment exemptive relief.

Question III.2.

Q.  Has the Division of Investment Management provided any assistance for investment companies affected by COVID-19?

A.  Yes.  The Division of Investment Management has taken temporary positions in the no-action letters described below, which funds affected by COVID-19 may find useful.

Certain purchases by affiliates

  • In one letter, the staff addresses the ability of certain affiliates to purchase debt securities from a mutual fund, under the circumstances and subject to the conditions described in the letter.
  • In another letter, the staff addresses the ability of certain affiliates to purchase securities from a money market fund, under the circumstances and subject to the conditions described in the letter.  

Shareholder meetings

In addition, the staff of the Division of Investment Management, together with the staff of the Division of Corporation Finance, has published guidance to assist issuers (including registered investment companies and BDCs), shareholders, and other market participants affected by COVID-19 with meeting their obligations under the federal proxy rules with respect to shareholder meetings.  The staff issued this guidance on March 13, 2020, and updated it on April 7, 2020.

Signatures on electronic filings

The Division of Investment Management, together with the Division of Corporation Finance and the Division of Trading and Markets, issued a statement, on March 24, 2020, providing staff views regarding the requirement in Rule 302(b) of Regulation S-T that each signatory to documents electronically filed with the SEC under the federal securities laws “manually sign a signature page or other document authenticating, acknowledging or otherwise adopting his or her signature that appears in typed form within the electronic filing.”

EDGAR filing window on April 29, 2020

The Division of Investment Management issued a statement, on April 22, 2020, stating that it was extending the EDGAR filing window on April 29, 2020, from 5:30 p.m. to 10:00 p.m. Eastern Daylight Time (EDT) for registered investment company and business development company filings. Filers, including those who do not intend a filing date adjustment on that date, should refer to the statement for further information.

Investment Company Act Rule 8b-16(a) requires every registered management investment company that is required to file an annual report on Form N-CEN to amend its registration statement not more than 120 days after the close of its fiscal year. The 120th day for an investment company with a December 31, 2019, fiscal year end falls on April 29, 2020. (Modified April 27, 2020)

Question III.3.

Q.  Has the SEC provided any relief from in-person board meeting requirements?  Does this relief cover approvals of new auditors or advisory contracts?

A. Yes.  As noted above, the SEC has provided temporary exemptive relief for registered management investment companies, BDCs, and any investment adviser or principal underwriter of such companies, in circumstances related to the current or potential effects of COVID-19, from the requirements imposed under sections 15(c) and 32(a) of the Investment Company Act and Rules 12b-1(b)(2) and 15a-4(b)(2)(ii) under the Investment Company Act that votes of the board of directors of either the registered management investment company or BDC be cast in person.  The relief is subject to conditions described in the SEC’s order.

In addition, the Division of Investment Management provided guidance last year regarding these requirements.  See Independent Directors Council (Feb. 28, 2019), available here

Question III.4.

Q.  The SEC recently provided certain investment companies temporary additional flexibility to obtain short-term funding.  Are closed-end funds permitted to rely on this relief for borrowing?

A.  No, the March 23, 2020, order did not extend the temporary relief for borrowing to closed-end funds.  However, the SEC and its staff continue to assess impacts relating to COVID-19 on investors and market participants, and closed-end funds seeking to request relief should contact the Division of Investment Management.  Please see above for ways to contact the Division.

Question III.5.

Q:  Item 34.1 of Form N-2 requires a closed-end fund to undertake to suspend its offering of shares until it amends its prospectus if the fund’s net asset value declines more than 10% from the fund’s net asset value as of the effective date of its registration statement.  Several closed-end funds have informed us that their net asset value has declined more than 10% due to current market conditions associated with COVID-19.  These funds have asked whether they can satisfy the Item 34.1 undertaking by filing a prospectus supplement pursuant to Rule 497 under the Securities Act of 1933 instead of filing an amendment to their registration statement.

A:  If a closed-end fund’s net asset value declines by more than 10% due to the market conditions referenced above, the staff of the Division of Investment Management would not object to the fund satisfying the Item 34.1 undertaking by filing a prospectus supplement pursuant to Rule 497 under the Securities Act of 1933 if the fund notifies its Disclosure Review and Accounting Office staff reviewer of the name(s) of the closed-end fund(s) which intend to so file.  The staff would appreciate this notice at least one business day in advance of filing the prospectus supplement.  The fund may restart its offering of shares as of filing the prospectus supplement. 

Funds should consider including the following disclosure in the prospectus supplement:

  • that the fund’s net asset value has fallen and that, in accordance with the undertaking, the fund’s offering has been suspended as of a certain date;
  • the date on which the fund will restart its offering;
  • the extent, in dollars and by percentage amount, that the net asset value has fallen from the effective date of the fund’s registration statement; 
  • the fund’s net asset value as of a recent date and, if exchange traded, the last reported share price on the exchange;
  • an explanation of why the net asset value has fallen; and
  • any material information that needs to be updated in the prospectus such as how current market conditions have impacted the fund and its portfolio holdings.  If relevant, this disclosure should be tailored to specifically describe the impact of market conditions on the particular types of investments held by the fund.

Question III.6.

Q.  Is updated information available regarding the process for interested persons to request a hearing in connection with notices of applications under the Investment Company Act and the Investment Advisers Act?

A.  Yes. The Division of Investment Management issued IM Information Update 2020-03 on April 8, 2020 discussing this process. (Posted April 27, 2020)

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