The SEC finalized the new Tailored Shareholder Reports Ruling on October 26, 2022. The final ruling had several notable changes from the original proposal and presents significant changes for the industry.
In fact, the SEC estimates that new ruling will impact nearly 12,000 funds/ETFs and 32,000 share classes.
Understanding the ruling can be both complex and time consuming. DFIN has been closely reviewing all aspects and interpretations, as well as the impact on the industry and end investor.
The new ruling further solidifies the SEC’s commitment to modernize the design, delivery and content of shareholder communications, providing investors with the information they need in clear, concise formats.
Initial key takeaways include:
- The compliance date is July 24, 2024.
- A new Tailored Shareholder Report will be printed and mailed (or e-delivered if opted in) twice a year, replacing Rule 30e-3 for open-end funds and ETFs registered under N-1A.
- Certain information contained in the current Annual Report will either remain in the new Tailored Shareholder Report, be moved to Form N-CSR or be removed from shareholder reports.
- The Tailored Shareholder Report is at the share-class level.
- The Tailored Shareholder Report will also require iXBRL tagging. Form N-CSR will NOT require iXBRL.
- Layered Disclosure, the concept of providing a summary document with links to more comprehensive disclosure, is part of this ruling.
- While the N-CSR filing deadline is 70 days after FYE, the N-CSR and Tailored Shareholder Report must be posted by day 60.
- The SEC also encourages ADA-compliant tagged documents and websites.
What Fund Companies need to know
- The Tailored Shareholder Report contents will require a new 3–4 page report format. The intent is for the new reports to be “concise and visually engaging,” per the rule.
- Tailored Shareholder Reports are at the share-class level, which may result in additional content management, filing and distribution activity.
- Form N-CSR will contain the full audited financial statements. Values from the financials will be used as the source data on the Tailored Shareholder Reports.
- Inline eXtensible Business Reporting Language (iXBRL) tagging will be required for the Tailored Shareholder Reports.
- There will be increased and more complex web-hosting requirements.
- This ruling will eliminate the use of 30e-3 for open-end funds and ETFs, therefore Tailored Shareholder Reports will be mailed to shareholders, unless a shareholder opts in to electronic delivery.
What Insurance Companies need to know
- There is no blanket statement regarding Rule 30e-3 to cover all Annuity/Life contracts, as there are varying requirements for each class of filer.
- N-4 filer (variable annuity separate account organized as a unit investment trust) and N-6 filer (variable life separate account organized as a unit investment trust) cannot leverage 30e-3.
- Both N-4 and N-6 filers will be required to deliver new Tailored Shareholder Reports, printed and mailed (or e-delivered if opted in) twice a year.
- N-3 filer (insurance separate account organized as an open-end fund) can continue to leverage 30e-3.
- The new Tailored Shareholder Reports will need to be hosted on the company website.
DFIN will continue to provide thought leadership and guidance to educate our clients and ensure compliance with confidence.
DFIN provides streamlined solutions to meet all the new ruling requirements for annual reports and prospectuses including:
- Creation of automated financial statement documents
- iXBRL tagging and EDGAR filings
- Web hosting
- ADA compliance
DFIN’s Arc Suite is the industry’s leading end-to-end regulatory, reporting, legal, filing and distribution platform. Our new Trust Center provides clients with access to the latest information about security, privacy, compliance and resiliency when they need it. As markets fluctuate, regulations evolve and technology advances, DFIN delivers solutions in the moments that matter.