(Article from Registered Funds Regulatory Update, January 2022)
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In a letter to the Acting Director of the SEC’s Division of Investment Management, the Independent Directors Council (“IDC”) recommended that the SEC provide at least six months’ notice before withdrawing the temporary relief implemented due to the COVID-19 pandemic that suspended in-person voting requirements for directors of registered investment companies and BDCs under Sections 15(c) and 32(a) of the Investment Company Act and Rules 12b-1(b)(2) and 15a-4(b)(2)(ii) thereunder. The IDC also recommended that the SEC modernize the in-person voting requirements by providing flexibility on a permanent basis.
Currently, the temporary relief may be suspended by the SEC with only two weeks’ notice. The IDC asserted that it is vital that the SEC not withdraw the current temporary relief prior to the conclusion of the pandemic, particularly with an “insufficient” notice period. Instead, an extended notice period would provide fund boards with the appropriate time to orderly shift to an in-person meeting format.
The IDC also urged the SEC to provide permanent flexibility to the in-person voting requirements, as appropriate, noting the significant advancements in video conferencing technology that now make it possible for directors to hear and see each other simultaneously. Given the experience and effectiveness of virtual meetings during the pandemic, the IDC believes that permanent relief providing flexibility to the in-person voting requirements would provide directors with additional tools to conduct board business while still allowing them to fulfill their oversight responsibilities. The IDC recommended that any such relief be subject to core conditions, including the following:
- A board must develop written policies and procedures governing board meetings with virtual participation that are subject to review and approval by a majority of the board’s independent directors.
- The policies and procedures for board meetings where directors participate virtually must establish appropriate technology and security protocols subject to periodic review.
- The directors who participate virtually in board meetings must be able to communicate with one another simultaneously.
- The identity of each director casting a vote virtually during a board meeting must be known simultaneously to the other directors participating in the meeting.
Letter from Thomas T. Kim, Managing Director, Independent Directors Council, to Sarah ten Siethoff, Acting Director, Division of Investment Management, SEC (Sept. 2, 2021), available at https://www.idc.org/system/files/2021-09/21-ltr-voting.pdf.