Tips for Updating Your Compliance Program: Shareholder Reporting Requirements and Amendments to Advertising Rules

Compliance officers face the thankless task each year of reviewing their policies and procedures to determine their adequacy and effectiveness, as required by Advisers Act Rule 206(4)-7. This review entails updating the firm's compliance program to reflect changes to relevant regulations and new regulatory guidance, and confirming the program is appropriately followed by the firm.  

We’ve compiled a series of tips to help you focus on the U.S. Securities and Exchange Commission (SEC) focus areas for 2023. You can read our previous tips here:  

• Tip 1: Get ready for SEC focus on hedge clauses in advisory agreements
• Tip 2: Keep tabs on Continuing Education requirements
• Tip 3: Update your compliance program to address the SEC Risk Alert about MNPI compliance issues
• Tip 4: Prepare for an SEC examination focused on Marketing Rule compliance 
• Tip 5: Update Your Compliance Program to Prevent Identity Theft Under Regulation S-ID 
• Tip 6: Environmental, Social, and Governance (ESG)
• Tip 7: Electronic Communications
• Tip 8: Prohibited Transaction Exemption
• Tip 9: Conflicts of Interest
• Tip 10: Fiduciary Standard
• Tip 11: Form CRS
• Tip 12: SEC Exam Observations Risk Alert
• Tip 13: Enhanced Proxy Voting Requirements

Tip #14 - Adopt Processes to Address New Shareholder Annual and Semi-Annual Reports Requirements and Amendments to Advertising Rules

The SEC has adopted rule and form amendments that will transform how mutual funds and exchange traded funds (ETFs) present shareholder reports. The goal of the new rule is to provide retail investors with clear, concise, and relevant information while at the same time allowing more detailed reports to be made available via website. According to the SEC, “[t]he rule amendments will require funds to provide concise, tailored shareholder reports that highlight key information, such as fund expenses, performance, and portfolio holdings.” Additionally, mutual funds and ETFs that file Form N-1A will now have to physically deliver shareholder reports instead of relying on Rule 30e-3 of the Investment Company Act, which allows funds to post shareholder reports online and deliver only a notice of available to investors.   

The SEC also adopted amendments to the investment company advertising rules. The changes apply only to investment company and business development company (BDC) advertisements that include fee and expense figures. Advertisements with this information will now be required to include "(1) the maximum amount of any sales load, or any other nonrecurring fee; and (2) the total annual expenses without any fee waiver or expense reimbursement arrangement (collectively, the “required fee and expense figures”).”   

Although these rule changes become effective 60 days after their publication in the Federal Register, the SEC has provided an 18-month transition period to allow open-end funds time to adjust their shareholder reports and advertisements. 

Our guidance

Mutual fund managers will have a heavy lift with the new rules on shareholder reports. Funds must redesign their reports and return to the paper mailing process. Firms will also need to reconsider how they are advertising mutual fund fees and expenses. We continue to review these new rules and expect to provide a more thorough analysis in the future. 

How we help

We can help you to navigate the evolving regulatory landscape while considering the complexity of your firm’s unique compliance requirements. Introducing ACA Signature, a scalable solution curated to suit your firm’s unique compliance needs. ACA Signature provides financial firms with scalable consulting solutions that can be paired with innovative technology and managed services for staying on top of regulatory and daily obligations. Our team of regulatory experts can build, enhance, or manage your compliance program, helping to mitigate risks and increase operational efficiency. 

Designed by former regulators and compliance experts, ACA Signature provides services and solutions tailored to fulfill your firm’s ongoing compliance obligations. Our team includes former SEC, FINRA, FCA, NFA, CFTC, and state regulators along with former Chief Compliance Officers and senior compliance managers from prominent financial institutions in the industry. With over 20 years’ experience in the compliance industry, ACA is synonymous with quality compliance support. 

Reach out to your ACA consultant, or contact us to find out how ACA Signature can help transform your firm’s compliance program. 

Listen to our 2023 Regulatory Outlook webcast on demand 

We recently hosted a webcast to review the regulatory changes that will likely have implications on compliance programs in 2023, and provide recommendations to prepare for these changes. Our experts discussed rule proposals and adoption, examination and enforcement trends, and regulatory guidance. Watch our webcast for more insights to help you prepare your compliance program for this year’s focus areas. 

Watch now