SEC amends regulations for investment fund names

The Securities and Exchange Commission (SEC) has announced new amendments to its Investment Company Act ‘Names Rule’, enhancing regulations and other names-related requirements to ensure further investor protection and address developments in the industry.

The rule, which had initially been adopted 20 years ago, currently requires registered investment companies whose names focus on a particular type of investment to adopt a policy to invest at least 80 percent of the value of their assets in those investments.

Now, in light of the new amendments, more funds will be required to adopt the 80 percent investment policy, including funds with names suggesting a focus on investments based on specific characteristics, such as those that include terms like ‘growth’ or ‘value’.

This will also impact funds that utilise terms referencing a thematic investment, such as the incorporation of one of more environmental, social or governance factors, seemingly setting out limitations on potential greenwashing.

There are also new requirements based around compliance time frames, prospectus disclosures and additional reporting or recordkeeping for funds that fall under the names-related regulations.

In a release, SEC chair, Gary Gensler, said: “As the fund industry has developed over the last two decades, gaps in the current ‘Names Rule’ may undermine investor protection.

“Today’s final rules will help ensure that a fund’s portfolio aligns with a fund’s name. Such truth in advertising promotes fund integrity on behalf of fund investors.”