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Staff Guidance Addresses Proxy Voting Requirements for Investment Advisers

The SEC issued interpretive guidance that reviews some of the agency’s rules covering investment advisers and their responsibilities for proxy voting. The guidance also explains two exemptions from its rules that are often employed by proxy advisers.

The SEC published Staff Legal Bulletin (SLB) No. 20 Proxy Voting: Proxy Voting Responsibilities of Investment Advisers and Availability of Exemptions from the Proxy Rules for Proxy Advisory Firms, on June 30, 2014,

The interpretive guidance from the agency’s Investment Management and Corporation Finance Divisions reviews some of the SEC’s rules covering investment advisers and their responsibilities for proxy voting. The guidance also explains two exemptions from its rules that are often employed by proxy advisers.

SLB No. 20 clarifies the requirements from Release No. IA-2106, Proxy Voting by Investment Advisers, and the application of rules such as Rule 206(4)-6 of the Investment Advisers Act of 1940, and Rule 14a-2(b)(3) of the Securities Exchange Act of 1934.

Proxy advisers have been under scrutiny in recent years as shareholder groups have pressured companies to improve their governance and rein in corporate pay. Lobbying groups such as the Business Roundtable and U.S. Chamber of Commerce have asked the SEC to issue rules that put limits on proxy advisers’ activities.

“We are encouraged that the SEC has taken this important first step towards bringing the appropriate checks and balances to the proxy advisory industry,” said the Chamber in an emailed statement.

“These firms exert significant influence in the proxy voting process and should be subject to appropriate oversight,” the Business Roundtable said in a statement posted on its website.

The SEC examined issues involving proxy advisers during a December 2013 public roundtable. Some investors believe the agency’s actions, from the roundtable to the publication of SLB No. 20 are enough to address the concerns that have been raised.

The legal bulletin “doesn’t break new ground,” said Amy Borrus, deputy director for the Council of Institutional Investors in Washington. “The SEC has spent a lot of time examining this issue. There’s been years of discussion about this. It’s time to move on.”