The SEC Adopts Toughened ‘Names Rule’ for Investment Funds

In an effort to strengthen investor protections and curb misleading practices on the part of registered funds, the Securities and Exchange Commission (SEC) has upgraded its “Names Rule.”

The change is likely to affect many funds active in the cryptocurrency space. It will undoubtedly expand the SEC’s purview and ability to bring enforcement actions.

The SEC Demands “Truth in Advertising” Through Names Rule

The Names Rule is a clause within the Investment Company Act that, in essence, requires funds to invest money in a manner consistent with the funds’ names. Or at least with how an average person would construe their names.

For example, if a fund includes the term “real estate” in its name, it cannot make a bulk of its investments in firms and assets that have nothing to do with real estate. Under the rule, such a fund needs to make at least 80% of its investments in a way that people seeing “real estate” in the name would logically assume.

Per the upgraded rule, the SEC said in its announcement, more funds will be subject to this requirement. Though it did not say how many more or what the expanded criteria entail. And, funds must review the allocation of their assets at least quarterly.

“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.

Learn more about Gary Gensler’s regulatory vendetta against crypto funds and exchanges.

The New Rule Requires Larger Funds to Comply Faster

In addition, the upgraded rule lays down a maximum timeframe, which the SEC gave as “generally 90 days,” for fixing any discrepancies between name and investment strategy.

The amendments will go into effect 60 days after regulators set them down in the Federal Register.

If you are one of the bigger asset managers, you had better get your act together faster. The SEC gives funds of a $1 billion or more in value 24 months to comply. Funds with smaller values get up to 30 months.

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