The SEC Adopts Enhancements to the 'Names Rule'

On September 20, 2023, the Securities and Exchange Commission (SEC) adopted rule enhancements to the Investment Company Act, specifically targeting the "Names Rule." These changes aim to protect investors and prevent misleading fund names. A fund's name is crucial as it's the first information investors encounter.

The amended Names Rule includes several key provisions:

• Expanding the requirement for more funds, especially those with names implying a specific investment focus, to adopt an 80 percent investment policy.
• Mandating regular assessments of how a fund's portfolio aligns with the 80 percent investment policy, done quarterly.
• Prohibiting unlisted registered closed-end funds or business development companies from changing their 80 percent investment policy without shareholder approval, except for exceptional circumstances.
• Strengthening prospectus disclosure requirements related to fund names, ensuring they reflect plain English meanings or established industry use.
• Introducing more reporting and disclosure requirements for funds regarding their compliance with names-related regulatory requirements, including defining terms in fund names and disclosing criteria for selecting investments that match the term.

Funds with net assets of $1 billion or more have 24 months to comply, while those with less than $1 billion have 30 months.