Navigating Regulatory Requirements with Precision

BDCs are closed-end investment companies that have elected to be regulated as BDCs under the Investment Company Act of 1940, and are therefore regulated by the SEC under the Investment Company Act of 1940 (1940 Act), and are required to comply with Rule 38a-1 under the Investment Company Act, governing compliance programs for investment companies.

Externally managed BDCs must be advised by a registered investment adviser under the Investment Advisers Act of 1940 (Advisers Act), including Rule 206(4)-7 under the Advisers Act. Unlike other investment companies, BDCs function like traditional operating companies and are also subject to the Securities Act of 1933, the Securities Exchange Act of 1934, and the listing standards of the national securities exchange on which their shares of common stock are listed, if any.

Due to the panoply of rules and regulations with which a BDC must comply, maintaining compliance with the federal securities laws and exchange listing standards requires a comprehensive compliance program that is diligently administered. We have worked with many BDCs to develop and maintain comprehensive compliance programs.

Registered Investment Advisors (RIAs) are subject to compliance with Rule 206(4)-7 under the Advisers Act, which has similar requirements to Rule 38a-1, but also requires, among other things:

• filing and ongoing maintenance of Form ADV, the primary public disclosure document for RIAs; 
• determination of investment adviser representatives, if applicable, and determination of supervisory procedures; 
• trading policy; 
• best execution policy; 
• advertising procedures; 
• oversight of "pay to play" activities; and 
• oversight of compliance of pooled investment vehicles.

BDCs are subject to the various rules and additional disclosure obligations promulgated under the Sarbanes-Oxley Act of 2002, including the establishment of:

• an internal audit function, including management's assessment of its effectiveness, and an opinion of the issuer's auditors as to its effectiveness; 
• a whistleblower policy and procedures; and
• a retention program for audit documentation.

• appoint a chief compliance officer (CCO);
• develop, maintain, and test a compliance program encompassing all rules and regulations under the relevant securities laws, including:
• code of ethics and business conduct policy;
• personal securities holdings procedures;
• valuation policy and related documentation;
• custody/safekeeping procedures;
• Section 57 screening procedures for joint or affiliated transactions;
• disclosure policy and procedures;
• proxy voting policy;
• document retention program; and
• have the CCO present a CCO report to the Board of Directors at least annually to report findings, and assess the overall effectiveness of the compliance program.

Eversheds Sutherland has also worked with many service providers to the BDC, SBIC and alternative assets industry and would be happy to make recommendations for:

• compliance consultants;
• valuation professionals;
• investment banking professionals;
• auditing professionals;
• financial printing firms;
• insurance brokers; and
• transfer agents.