IM Guidance Update

MAY 2013 | No. 2013-02

US Securities and Exchange Commission

 Division of Investment Management

Compliance with Exemptive Orders

I

n June 2011, the Securities and Exchange Commission’s Office of Inspector General 

transmitted its final report detailing, among other things, the results of its review of 

the Commission’s oversight of compliance with the representations and conditions of 

exemptive orders (OIG Report).1

 The OIG Report detailed certain examples of firms 

that failed to comply with the representations and conditions of exemptive orders and 

made recommendations that are intended to enhance the Commission’s oversight of 

compliance with representations and conditions in exemptive orders.2 In connection with 

these findings and recommendations, we are issuing the following guidance.3

Rule 206(4)-7 under the Investment Advisers Act of 1940 (Advisers Act), in relevant part, 

requires investment advisers to adopt and implement written policies and procedures 

reasonably designed to prevent violation of the Advisers Act and the rules thereunder 

and to annually review the adequacy of those policies and procedures and the effectiveness of their implementation. Rule 38a-1 under the Investment Company Act of 1940 

(1940 Act), in relevant part, requires funds to adopt and implement written policies and 

procedures reasonably designed to prevent the fund from violating the federal securities 

laws, to obtain board approval of such policies and procedures, and to annually review 

the adequacy of the policies and procedures of the fund. Rule 206(4)-7 and rule 38a-1 do 

not enumerate specific required elements of the policies and procedures, but allow compliance programs to be tailored to the nature and scope of the entity’s own business.4

Entities that receive and rely upon exemptive orders are at risk of violating the federal 

securities laws if they fail to comply with the representations and conditions of such 

orders. Thus, the consequences of non-compliance may be severe. One way for such 

entities to address such risk is to adopt and implement policies and procedures, in accordance with rule 206(4)-7 or rule 38a-1, that are reasonably designed to ensure ongoing 

compliance with each representation and condition of the order. For example, a fund may 

have received an order that includes conditions relating to board review. The fund could 

consider adopting a specific policy or procedure to address the required board review. 

Alternatively, the fund could consider whether an existing policy or procedure relating to 

board review of other matters would incorporate the specific board review required by 
the particular condition. As with all policies and procedures under the compliance rules, 

the adequacy and effectiveness of implementation of any such policy should be reviewed 

at least annually, in an effort to ensure ongoing compliance with such conditions.

Endnotes

1 SEC Office of Inspector General, Oversight of and Compliance With Conditions and Representations Related to Exemptive Orders and No-Action Letters, Report No. 482 (June 29, 2011) 

available at: http://www.sec-oig.gov/Reports/AuditsInspections/2011/482.pdf. 

 

2 OIG Report pp. 24-29.

3 In addition, the National Exam Program announced that an investment adviserinvestment company examination focus area for 2013 is compliance with exemptive orders. 

See National Exam Program: Examination Priorities for 2013 (February 21, 2013) available at: 

http://www.sec.gov/about/offices/ocie/national-examination-program-priorities-2013.pdf

4 Compliance Programs of Investment Companies and Investment Advisers, SEC Release Nos. 

IA-2204, IC-26299 (Dec. 17, 2003) available at: http://www.sec.gov/rules/final/ia-2204.htm. 

This IM Guidance Update summarizes the Commission staff’s views regarding various 

requirements of the Investment Company Act of 1940 and/or the Investment Advisers Act 

of 1940. Future changes in laws or regulations may supersede some of the discussion or 

issues raised herein. This IM Guidance Update is not a rule, regulation or statement of the 

Commission, and the Commission has neither approved nor disapproved of 

this IM Guidance Update.

The Investment Management Division works to:

s protect investors

s promote informed investment decisions and 

s facilitate appropriate innovation in investment products and services 

through regulating the asset management industry.

If you any questions about this IM Guidance Update, please contact:

SEC Division of Investment Management

Chief Counsel’s Office/Public Inquiry

Phone: 202.551.6825

Email: IMOCC@sec.gov

IM GUIdanCE UpdatE 2