(Article from Registered Funds Regulatory Update, April 2025)
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On January 8, 2025, the SEC Staff issued a series of FAQs related to the adoption of amendments in 2023 to Rule 35d-1 under the 1940 Act, the so-called “Names Rule,” to address interpretive issues, including certain broad categories of investment company names that are likely to mislead investors about an investment company’s investments and risks. Concurrent with the issuance of the 2025 Names Rules FAQs, the Staff announced that it was withdrawing the Names Rule FAQs issued in 2001, which the Staff determined were superseded by or otherwise inconsistent with the 2023 Amendments.
Adopted in 2001, the Names Rule was proposed and implemented with a goal of reducing investor confusion and greenwashing in fund names. The SEC adopted amendments in September 2023 to expand the scope of the Names Rule to any fund whose name suggests an investment focus in a particular area or that such fund has certain characteristics (for example, thematic funds that include ESG characteristics in their names or “growth” or “value” funds). Under the 2023 Amendments, impacted funds will be required to adopt, and disclose criteria related to, a policy to invest 80% of their assets in investments suggested by the fund’s name.
Notably, the 2025 Names Rules FAQs (i) clarified the circumstances under which a fund’s adoption of, or amendments to, an 80% investment policy that is a fundamental policy of the fund would require shareholder approval; (ii) addressed specific terms commonly used in fund names, including: “Income,” “High-Yield,” “Tax-Sensitive,” and “Money Market”; and (iii) provided guidance as to how tax-exempt funds satisfy their 80% investment policy requirements.
On March 14, 2025, the SEC announced a six-month extension of the compliance dates for the 2023 Amendments. The compliance dates were extended to June 11, 2026 and December 11, 2026 for larger fund groups and smaller fund groups, respectively. The SEC noted that the extension is designed to provide “additional time to implement the amendments properly, develop and finalize funds’ compliance systems, and test their compliance plans.” The SEC also aligned the compliance dates with the timing of certain annual disclosure and reporting obligations that are tied to the end of a fund’s fiscal year.
2025 Names Rule FAQs (Jan. 8, 2025), available at: https://www.sec.gov/rules-regulations/staff-guidance/division-investment-management-frequently-asked-questions/2025-names-rule-faqs.
SEC Press Release, SEC Extends Compliance Dates for Amendments to Investment Company Names Rule (Mar. 14, 2025), available at: https://www.sec.gov/newsroom/press-releases/2025-54.