Securities Regulation Daily SEC adopts expedited review procedure for exemptive applications under the Investment Company Act
Tuesday, July 7, 2020

SEC adopts expedited review procedure for exemptive applications under the Investment Company Act

By Rodney F. Tonkovic, J.D.

The Commission established an expedited review procedure for routine applications for exemptions that is substantially identical to recent precedent.

The SEC has adopted rule amendments establishing an expedited review procedure for exemptive and other applications under the Investment Company Act. Amendments to Rule 270.0-5 sets forth an expedited procedure for routine applications under which an applicant must request expedited review if the application is substantially similar to two applications for the requested relief for which an order has been issued within the past three years. New rule 202.12 establishes an informal internal timeframe for review of applications outside of the expedited procedure (Amendments to Procedures With Respect to Applications Under the Investment Company Act of 1940Release No. IC-33921, July 6, 2020).

Exemptive applications. The Commission notes that it regularly receives applications for exemptions or other relief from provisions of the Investment Company Act. The application process has been a key tool in the evolution of the investment management industry because, for example, it has served as the impetus for rulemaking and has allowed the creation of new types of funds, such as ETFs, not contemplated by the drafters of the Act. While the Commission's careful review process is important, past applicants have expressed concern over the length of time requires to obtain an order. There have been initiatives aimed at improving the process, such as a 2008 internal performance target of providing initial comments on at least 80 percent of applications within 120 days; after June 2019, a new target of 90 days was implemented. The Commission has also made it a priority to propose and adopt rules to replace certain routine applications.

The rule changes are intended to make the application process more efficient as well as to provide additional certainty and transparency. To that end, the Commission has adopted an expedited review process for routine applications, an informal internal procedure for applications that would not qualify for the expedited process, and a rule to deem an application withdrawn when an applicant does not respond in writing to Staff comments within 120 days. The rule was proposed in October 2019, and the Commission has adopted the rule and amendments largely as proposed.

"The application process under the Investment Company Act is an important component of our regulatory structure. The process provides economic benefits to fund shareholders, expands investor choice, and facilitates innovation in the asset management industry, all with a steadfast commitment to transparency and investor protection," said SEC Chairman Jay Clayton. "The changes approved today will modernize and streamline this process, resulting in improved transparency, reduced costs, and a more efficient use of our staff’s resources."

Expedited review. To expedite the review of routine applications the Commission adopted amendments to Investment Company Act Rule 0-5. The release stresses that this procedure is substantially identical to recent precedent, which will facilitate staff review, allowing relief to be granted more quickly and leaving resources available for the review of more novel requests. The amendments to Rule 0-5 provide that:

  • An applicant may request expedited review if the application is substantially identical to two other applications for which an order granting the requested relief has been issued within three years of the date of the application’s initial filing.
  • The application must prominently state that expedited review is requested, and applicant must submit exhibits with marked copies showing changes from the two precedent applications.
  • Notice for an application submitted for expedited review will be issued no later than 45 days from the date of filing unless the application is not eligible or additional time is necessary for appropriate staff consideration.
  • An application is deemed withdrawn if the applicant does not respond in writing to staff comments within 120 days. The withdrawal is without prejudice to refiling, but the timeline restarts with the new application.

Timeframe for other applications. In addition to the expedited review process, the Commission adopted new Rule 202.13 to provide an informal timeframe for all other applications filed under Rule 0-5. Under Rule 202.13, the staff should take action on an application within 90 days of the initial filing and each of the first three amendments, and within 60 days of any subsequent amendment; the staff may also grant 60-day extensions. Action on an application consists of: issuing a notice of application; providing comments; or informing the applicant that the application will be forwarded to the Commission.

The release is No. IC-33921.

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