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SEC issues two new rule proposals for certain registered investment companies and investment advisers

On May 25, the SEC issued two new proposals applicable to certain investment companies and investment advisers:

The first proposal would amend the Investment Company Act of 1940 to improve and clarify the “names rule,” which requires certain funds to adopt a policy to invest at least 80% of their assets in accordance with the investment focus that the fund’s name suggests. The amendments would expand the scope of the rule to any fund name with terms suggesting that the fund focuses on investments that have, or investments whose issuers have, particular characteristics, such as ESG. It would also update the rule’s notice requirements, and establish recordkeeping requirements.

The second proposal would standardize ESG disclosures for registered investment advisers, certain advisers that are exempt from registration, registered investment companies, and business development companies. The proposed amendments include various disclosure and reporting requirements to provide shareholders and clients improved information from funds and advisers that consider one or more ESG factors. The amendments would also require funds and advisers to report census type information on their ESG investment practices in regulatory reporting to the Commission.

Both proposals are subject to a 60 day comment period after publication in the Federal Register.

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