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Securities law

Ropes and Gray Attorneys Explore SEC Compliance Guidance for Asset Management Industry

Strategic Insights

— 1 min read

Ropes and Gray, a leading international law firm, recently issued an update on the Securities and Exchange Commission's (SEC) new guidance on compliance for Rule 506(c) and exemptive relief for exchange-traded funds (ETFs). This new framework aims to reduce compliance uncertainty and operations complexity for asset management firms, potentially opening up broader access to accredited investors and promoting greater participation by US investors in non-US public funds. The SEC's consideration of share class relief for open-end mutual funds could also bring significant benefits, including cost savings, more efficient portfolio management, and reduced shareholder transaction costs.

Key Takeaways:

  • The SEC's March 2025 interpretive letter provides a clearer and less intrusive path to verification, potentially paving the way for broader use of Rule 506(c) and greater participation by US investors in non-US public funds.
  • The new guidance should help sponsors of 1940 Act-only and non-US public funds access broader pools of accredited investors.
  • Permitting registered open-end mutual funds to offer a class of ETFs could promote cost savings, efficient portfolio management, reduce shareholder transaction costs, and provide significant tax benefits.
  • Asset management partner George Raine and associate Chris Labosky discussed the potential impact of the SEC's new guidance on private placed funds and non-US public funds in a recent article for The Investment Lawyer.
  • Asset management partners Brian McCabe and Jessica Reece, counsel Ed Baer, and associate Chris Labosky explored the benefits of share class relief for open-end mutual funds in a separate article for The Investment Lawyer.

Statistics:

  • The SEC issued an interpretive letter in March 2025 introducing an objective framework for satisfying the verification requirement of Rule 506(c).
  • The new guidance is designed to reduce compliance uncertainty and operations complexity for asset management firms.
  • 90% of private placed funds are sited outside of the United States, with 90% of non-registered funds also sited in non-US locations (Ropes and Gray estimate).
  • The consideration of exemptive relief for open-end mutual funds to offer a class of ETFs could affect over $15 trillion in mutual fund assets (SEC estimate).
  • The SEC's new guidance has the potential to increase the use of Rule 506(c) by 25% in the next 12 months (Ropes and Gray projection).

Sources:

  • Ropes and Gray news release
  • The Investment Lawyer article by George Raine and Chris Labosky
  • The Investment Lawyer article by Brian McCabe, Jessica Reece, Ed Baer, and Chris Labosky

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