The SEC Demands “Truth in Advertising” Through Names Rule
The Securities and Exchange Commission (SEC) has made changes to its “Names Rule” in an effort to enhance investor protections and prevent misleading practices by registered funds. This update will have a significant impact on funds operating in the cryptocurrency space, expanding the SEC’s authority and enforcement capabilities.
The Names Rule is a provision within the Investment Company Act of 1940 that requires funds to invest their money in a manner consistent with their names or how an average person would interpret their names. For example, if a fund includes “real estate” in its name, it must invest at least 80% of its assets in a way that aligns with the perception of real estate investments.
Under the upgraded rule, the SEC stated that more funds will be subject to this requirement, although it did not specify the exact criteria or the number of additional funds. Funds will also be required to review their asset allocation on a quarterly basis.
“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,” said SEC Chair Gary Gensler.
The New Rule Requires Larger Funds to Comply Faster
The updated rule establishes a maximum timeframe, generally 90 days, for larger funds to rectify any discrepancies between their names and investment strategies. These amendments will take effect 60 days after they are published in the Federal Register.
If you manage a larger asset fund worth $1 billion or more, you must act swiftly to comply with the new requirements. These funds have 24 months to implement the necessary changes. Smaller funds have up to 30 months to comply.
Hot Take: The SEC’s Commitment to Investor Protection
The SEC’s enhanced Names Rule demonstrates its dedication to investor protection and maintaining the integrity of registered funds. By ensuring that fund portfolios align with their names, investors can make more informed decisions and trust that the investments match their expectations. This rule update holds funds accountable for accurately representing their investment strategies, especially in the rapidly evolving cryptocurrency space. With SEC Chair Gary Gensler leading the charge, investors can expect increased transparency and accountability from funds in the future.
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