SEC Extends Compliance Deadlines for Fund Naming Rule Changes, Issues New Clarifications

The Securities and Exchange Commission (SEC) has announced a six-month extension for compliance with the 2023 amendments to the "Names Rule" (Rule 35d-1) under the Investment Company Act of 1940. The rule governs how investment funds name themselves to ensure names are not misleading regarding investment focus.

Under the updated timeline:

• Larger fund groups now have until June 11, 2026 (previously December 11, 2025).
• Smaller fund groups have until December 11, 2026 (previously June 11, 2026).

The SEC stated that the extension is intended to balance investor protections with the practical needs of funds to implement the amendments. This includes the time needed to finalize compliance systems, test them thoroughly, and align implementation with annual disclosure and reporting cycles. This timing is expected to help reduce operational costs associated with transitioning to the new requirements.

Updated FAQ Offers Clarification

In addition to extending deadlines, the SEC also issued a revised FAQ for the Names Rule on January 8, 2025, providing important clarifications for fund managers and compliance professionals:

• Fund name changes and shareholder approval: Shareholder approval is not required to add or revise a fundamental 80% investment policy, unless the change allows deviation from an existing policy or alters another existing fundamental policy.
• Clarification on "tax-sensitive" language: The staff clarified that descriptors like “tax-advantaged” or “tax-efficient” are treated similarly to “tax-sensitive.” These terms are considered to describe a fund’s investment strategy, not a focus on specific investment types.
• Use of the term “income”: The FAQ clarified that when a fund name includes the word “income,” it does not necessarily imply a focus on fixed-income securities. Instead, it may reflect an investment objective aimed at generating current income. As a result, the inclusion of “income” in a fund’s name does not automatically trigger the requirement for an 80% investment policy.

These updates are part of the SEC’s broader efforts to enhance transparency and consistency in fund naming practices, ensuring that fund names accurately reflect investment strategies and objectives while providing clear guidance to fund managers preparing for compliance.

The amendments to the Names Rule, originally adopted in September 2023, aim to strengthen investor protections by requiring funds with names suggesting a particular focus to meet those expectations through actual portfolio holdings.

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