A Dechert webinar recapping the latest regulatory actions impacting BDCs and Closed-End Funds
The Regulatory Winds Are Shifting
A recent Dechert webinar on BDCs and closed-end funds made one thing abundantly clear: the agency has been active the past several months, issuing no-action letters and proposed rules that, taken together, amount to an evolving regulatory landscape.
The No-Action Letters at Center Stage
Three no-action letters were the focus of conversation.
The first, issued in April 2026, extends co-investment exemptive relief to open-end funds, which had been excluded from the co-investment exemptive order framework available to BDCs and closed-end funds. Just as notable: it permits boards to delegate co-investment approvals to a smaller committee of independent directors rather than requiring a full board vote. For larger boards operating under tight deal timelines, this is a meaningful practical fix.
The second letter, issued in June 2026, eliminates the “per-share cap” on underwriting compensation as a condition of BDC multi-class exemptive orders. The per-share cap, which was viewed as administratively burdensome since it required account-by-account, lot-by-lot tracking, existed solely as a condition of the exemptive relief. Following the no-action relief, multi-class BDCs can now look solely to the simpler fund-wide cap contained in FINRA Rule 2310.
The third letter addressed seed capital mechanics for newly organized non-traded BDCs and closed-end funds, providing a workable structure for affiliates to seed a fund via a preferred share class that would not count towards a fund’s leverage restrictions and would allow the affiliates to exit that position as the fund grows.
The Proposals Worth Watching
The proposed rules generated equally animated discussion. The idea that BDCs, historically tethered to quarterly Form 10-Q filings like any public operating company, could instead elect to file semi-annually using a new Form 10-S was met with interest and recognition of potential cost savings. That said, the practical friction was not ignored: underwriter expectations, gatekeeper requirements and capital markets access windows all could create headwinds for any BDC considering the transition to semi-annual reporting, should the proposal be adopted.
The filer status proposal, which would collapse the current five-category framework into two primary tiers and raise the large accelerated filer public float threshold to US$2 billion, drew attention for its SOX 404(b) implications. Removing the auditor attestation requirement for all non-accelerated filers (as defined under the proposed rule, which captures a significant number of current accelerated filers and even large accelerated filers) represents a potentially significant cost savings.
Lastly, the presenters discussed an offering reform proposal that would preempt state blue sky registration requirements for non-traded BDCs – a transformative development. The proposal would also expand short-form registration and shelf eligibility for exchange-listed funds, which could substantially facilitate raising capital.
The Takeaway
The clearest theme across the session: the SEC's recent posture toward BDCs and closed-end funds has shifted toward accommodation, and market participants should be moving now to assess whether the new no-action relief can be beneficial and how the proposals may impact their operations.
