ICI Calls for Overhaul of 1940 Investment Company Act

The Investment Company Institute ("ICI") urged the SEC to consider a series of recommendations to modernize the Investment Company Act of 1940—the regulatory framework under which funds are offered to retail investors.

The asset management association stated that the SEC has the "broad authority to modify the provisions of the Act 'to the extent necessary or appropriate in the public interest and consistent with the protection of investors and [the purposes of the Act].'" The recommendations, developed over three years, were approved by ICI's Board of Governors. 

The ICI emphasized that the 1940 Act "has not been comprehensively reviewed in more than 30 years" and stated that its blueprint aims to "foster ETF innovation, expand retail investors' access to private markets, strengthen closed-end funds, eliminate unnecessary regulatory costs and burdens, and better leverage the expertise and independence of fund directors."

Among the recommendations, the ICI urged the SEC to:

1. "Enable a new or existing fund to offer both mutual fund and ETF share classes."
2. "Expand permissible asset classes for semi-transparent ETFs."
3. "Allow closed-end funds to more flexibly invest in private fund."
4. "Remove the annual shareholder meeting requirement for listed closed-end funds."
5. "Let fund boards rely on state-recognized anti-takeover measures."
6. "Update the framework for fund co-investments."
7. "Create more flexibility for closed-end funds to provide repurchase opportunities to their investor."
8. "Let interval funds and tender offer funds operate as series companies."
9. "Adopt electronic delivery of information as the default delivery option."
10. "Streamline the shareholder approval process."
11. "Restore the ability of funds to cross-trade."
12. "Allow closed-end funds to use more than one type of debt."
13. "Permit continuously offered closed-end funds to offer multiple share classes."
14. "Streamline notification requirements for distributions."
15. "Update requirements for in-person voting by directors."
16. "Permit streamlined board approval of new subadvisory contracts and annual renewals."
17. "Revise the 'interested person' standard."
18. "Permit fund boards to appoint a greater number of new independent directors."
19. "Update fund board responsibilities with respect to auditor approval."