Rule 17g-1 Supporting Statement 2023

OMB CONTROL NUMBER: 3235-0213

SUPPORTING STATEMENT
For the Paperwork Reduction Act Information Collection Submission for
Rule 17g-1
A.

JUSTIFICATION
1.

Necessity for the Information Collection
Section 17(g) of the Investment Company Act of 1940 (the “Act”) (15 U.S.C.

80a-17(g)) authorizes the Commission to require by rules and regulations, for the
protection of investors, that officers and employees of registered management investment
companies (“funds”) who may singly, or jointly with others, have access to securities or
funds of any registered management investment company, either directly or through
authority to draw upon such funds or to direct generally the disposition of such securities,
to be bonded by a reputable fidelity insurance company against larceny and
embezzlement. The Commission, pursuant to this provision, adopted rule 17g-1 (17 CFR
270.17g-1) in 1947 and has subsequently amended the rule on numerous occasions. Rule
17g-1 provides, in substance, the following requirements:
Independent Directors’ Approval
The form and amount of the fidelity bond must be approved by a majority of the fund’s
independent directors at least once annually, and the amount of any premium paid by the fund
for any “joint insured bond,” covering multiple funds or certain affiliates, must be approved by a
majority of the fund’s independent directors.
Terms and Provisions of the Bond
The amount of the bond may not be less than the minimum amounts of coverage set forth
in a schedule based on the fund’s gross assets. The bond must provide that it shall not be
cancelled, terminated, or modified except upon 60 days’ written notice to the affected party and

to the Commission. In the case of a joint insured bond, 60 days’ written notice must also be
given to each fund covered by the bond. A joint insured bond must provide that the fidelity
insurance company will provide all funds covered by the bond with a copy of the agreement, a
copy of any claim on the bond, and notification of the terms of the settlement of any claim prior
to execution of that settlement. Finally, a fund that is insured by a joint bond must enter into an
agreement with all other parties insured by the joint bond regarding recovery under the bond.
Filings with the Commission
Upon the execution of a fidelity bond or any amendment thereto, a fund must file with
the Commission within 10 days: (i) a copy of the executed bond or any amendment to the bond,
(ii) the independent directors’ resolution approving the bond, and (iii) a statement as to the
period for which premiums have been paid on the bond. In the case of a joint insured bond, a
fund must also file: (i) a statement showing the amount the fund would have been required to
maintain under the rule if it were insured under a single insured bond; and (ii) the agreement
between the fund and all other insured parties regarding recovery under the bond. A fund must
also notify the Commission in writing within five days of any claim or settlement on a claim
under the fidelity bond.
Notices to Directors
A fund must notify by registered mail each member of its board of directors of: (i) any
cancellation, termination, or modification of the fidelity bond at least 45 days prior to the
effective date; and (ii) the filing or settlement of any claim under the fidelity bond when
notification is filed with the Commission. The Commission amended rule 17g-1 most recently in
2004 to require that the fund’s board of directors satisfy the fund governance standards defined

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in rule 0-1(a)(7) (17 CFR 270.0-1(a)(7)). 1 This amendment was designed to enhance the
independence of fund boards and enable them to more effectively manage the conflicts
investment advisers have with the funds they manage.
2.

Purpose and Use of the Information Collection

The requirements of rule 17g-1 are designed to protect fund shareholders from losses due
to larceny and embezzlement. As discussed above, the rule contains two sets of filing and
reporting requirements that constitute collections of information. The first set of requirements
pertains to filings made to the Commission. The second set requires that notices be given to the
fund’s directors.
Filings with the Commission
Rule 17g-1 requires funds to file with the Commission copies of the executed bond
agreement, the independent directors’ resolution of approval, and a statement of paid premiums.
The rule also requires Commission notice if a filed fidelity bond is cancelled, terminated, or
modified. Funds are also required to file written notification with the Commission of any claim
or settlement on a claim under the fidelity bond. Finally, for joint insured bonds, funds must file
a statement showing the amount the fund would have been required to maintain under the rule
for a single insured bond and the agreement between the fund and all other insured parties
regarding recovery under the bond. These filing requirements assure that Commission staff can
review the executed fidelity bond and other documents for compliance with the Act. The filing
requirements also inform the Commission staff of potential problem areas, especially when
1

Investment Company Governance, Investment Company Act Release No. 26520 (July 27, 2004)
(69 FR 46378 (Aug. 2, 2004)).

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modifications in the bond result in an increase or decrease in fidelity coverage. Having the
fidelity bond and other documents available for ready reference by the staff facilitates a
determination as to whether, for example, a fund has acted properly in not seeking recovery for a
loss.
Notices to Directors
The rule also requires that a fund notify each member of its board when there has been a
cancellation, termination, or modification of the fidelity bond or a claim has been filed, or a
settlement of any claim has been made under the fidelity bond. The notices to fund directors
enable fund boards to monitor and provide oversight on the adequacy of the fund’s fidelity bond
coverage. Without these notices it would be difficult for directors to meet this responsibility, and
it would be difficult for the Commission staff to verify that directors receive timely information.
3.

Consideration Given to Information Technology

The Commission’s Electronic Data Gathering, Analysis and Retrieval System
(“EDGAR”) provides for the automated filing, processing, and dissemination of full disclosure
filings. The automation provides for speed, accuracy, and public availability of information,
generating benefits to investors and financial markets. Funds are required to submit filings under
rule 17g-1 electronically using EDGAR.
4.

Duplication

The Commission periodically evaluates rule-based reporting and recordkeeping
requirements for duplication, and reevaluates them whenever it proposes a rule or form, or a
change in either. The requirements of rule 17g-1 are not duplicated elsewhere in federal
securities laws, and similar information is not available from other sources.

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5.

Effect on Small Entities

The information collection requirements of rule 17g-1 apply to all funds, including those
that are small entities. These requirements are necessary for the safety of fund assets and
investor protection.
6.

Consequences of Not Conducting Collection

Rule 17g-1’s required notices to fund directors are designed to facilitate board oversight
of the fund’s fidelity bond. The rule’s required filings with the Commission are designed to
assist the Commission in monitoring the funds’ compliance with the rule’s fidelity bond
requirements. Both sets of requirements seek to assure that information is provided in a timely
manner for effective investor protection.
7.

Inconsistencies with Guidelines in 5 CFR 1320.5(d)(2)

The collection is not inconsistent with 5 CFR 1320.5(d)(2).
8.

Consultation Outside the Agency

The Commission and the staff of the Division of Investment Management participate in
an ongoing dialogue with representatives of the fund industry through public conferences,
meetings, and informal exchanges. These various forums provide the Commission and its staff
with a means of ascertaining and acting upon paperwork burdens confronting the industry. The
Commission requested public comment on the collection of information requirements of rule
17g-1 before it submitted this request for extension and approval to the Office of Management
and Budget. The Commission received no comments in response to this request.
9.

Payment or Gift

Not applicable.

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10.

Confidentiality

Not applicable.
11.

Sensitive Questions

No information of a sensitive nature, including social security numbers, will be required
under this collection of information. The information collection may collect personally
identifiable information (PII) that may include names or job titles. However, the agency has
determined that the information collection does not constitute a system of record for purposes of
the Privacy Act. Information is not retrieved by a personal identifier. In accordance with
Section 208 of the E-Government Act of 2002, the agency has conducted a Privacy Impact
Assessment (PIA) of the EDGAR system, in connection with this collection of information. The
EDGAR PIA, published on March 22, 2023, is provided as a supplemental document and is also
available at https://www.sec.gov/privacy.
12.

Burden of Information Collection

The following estimates of average burden hours and costs are made solely for purposes
of the Paperwork Reduction Act of 1995 (“PRA”) (44 U.S.C. 3501 et seq.) and are not derived
from a comprehensive or even representative survey or study of the cost of Commission rules
and forms. Rule 17g-1 contains collection of information requirements. The rule’s requirements
are mandatory for funds. The information provided under rule 17g-1 will not be kept
confidential.
After a fund’s fidelity bond is executed, the fund enters into any agreements relating to a
joint bond and files copies of these and related documents with the Commission. Following this
initial filing, the ongoing requirements of the rule are: (i) notification to the Commission of

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amendments to, and claims and settlements on, the fidelity bond; (ii) annual approval of the
fidelity bond by the fund’s independent directors; and (iii) notification to the fund’s directors
regarding claims and settlements on the fidelity bond. Depending on a fund’s circumstances,
particularly whether the fund makes a claim under its bond, the burden hours associated with
complying with these requirements could vary widely.

Table 1: Current Rule 17g-1 PRA Estimates
CURRENT ESTIMATES TO PREPARE RULE 17G FILINGS

2

Internal Hour
Burdens

Wage Rate

Internal Annual Time
Costs

Annual burden per response
(compliance attorney)

1.0

$368/hour 2

$368

Annual burden per response
(the fund’s board of directors)

1.0

$4,465/hour

$4,465

Number of annual responses

2,200

Total annual burden
(compliance attorney)

2,200

$809,600

Total annual burden
(fund board)

2,200

$9,823,000

Total estimated annual burden

4,400

$10,632,600

The estimated wage figure is based on published rates for compliance attorneys from the Securities
Industry and Financial Markets Association’s Report on Management & Professional Earnings in the
Securities Industry 2013 (“SIFMA Wage Report”), and adjusted by Commission staff to account for an
1800-hour work-year as well as to account for bonuses, firm size, employee benefits, overhead, and the
effects of inflation.

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Table 2:

Revised Rule 17g-1 PRA Estimates

REVISED ESTIMATES TO PREPARE RULE 17G FILINGS
Internal Hour
Burdens

Wage Rate

Internal Annual Time
Costs

Annual burden per response
(compliance attorney)

1.0

$425/hour 3

$425

Annual burden per response
(the fund’s board of directors)

1.0

$4,770/hour 4

$4,770

Number of annual responses

2,543

5

Total annual burden
(compliance attorney)

2,543

$1,080,775

Total annual burden
(fund board)

2,543

$12,130,110 7

Total estimated annual burden

5,086

$13,210,885 8

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3

The estimated wage figure is based on salary information from the Securities Industry and Financial
Markets Association’s Report on Management & Professional Earnings in the Securities Industry 2013,
modified by Commission staff to account for an 1,800 hour work-year and adjusted to account for bonuses,
firm size, employee benefits, overhead, and the effects of inflation.

4

Commission staff estimated in 2011 that the average cost of board of director time was $4,000 per hour for
the board as a whole, based on information received from funds and their counsel. Adjusting for inflation,
Commission staff estimates that the current average cost of board of director time is approximately $4,770
per hour.

5

Based on a review of fund filings for the three-year period from January 1, 2020 to December 31, 2022,
Commission staff estimates there are approximately 2,186 funds (registered open- and closed-end funds,
and business development companies) that must comply with the collections of information under rule 17g1, and which collectively submit an estimated 2,543 filings on Form 17G annually.

6

2,543 responses x $425 of attorney time = $1,080,775.

7

2,543 x $4,770 board hours = $12,130,110.

8

$1,080,775 + $12,130,110 = $13,210,885 total annual internal cost for all funds.

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13.

Cost to Respondents

Cost burden is the cost of goods and services purchased to comply with rule 17g-1. The
external cost burden does not include the internal cost of the hour burden discussed in Item 12
above. We continue to estimate that the filing and reporting requirements of rule 17g-1 do not
entail any external cost burdens.
14.

Cost to the Federal Government

The Commission staff may review filings made pursuant to rule 17g-1 in connection with
its examination program or when an issue arises concerning a fund’s fidelity bond. The
Commission staff, however, does not review filings made pursuant to rule 17g-1 on a regular
basis. Therefore, the ongoing cost to the federal government of rule 17g-1 is negligible.
15.

Changes in Burden

The total internal burden of 5,086 hours represents a change of 686 hours compared to
the previous estimate of 4,400 hours. The change in burden hours is based on a change in the
number of responses the Commission estimates it will receive. Commission staff continues to
estimate that the filing and reporting requirements of rule 17g-1 do not entail any external cost
burdens.
Rule
17g-1

Annual No. of Responses
Previously Requested Change
approved
2,200

2,543

+343

9

Annual Time Burden (Hrs.)
Previously Requested Change
approved
4,400

5,086

+ 686

16.

Information Collection Planned for Statistical Purposes

Not applicable.
17.

Approval to Omit OMB Expiration Date

Not applicable.
18.

Exceptions to Certification Statement for Paperwork Reduction Act

Submission
Not applicable.
B.

COLLECTIONS OF INFORMATION EMPLOYING STATISTICAL METHODS
Not applicable.

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