As the Coronavirus, or COVID-19, continues to spread, the widespread impact on the markets, trading, firm operations, compliance obligations – every facet of the market, firms, and individuals working in the industry and customers are affected. Securities regulators and industry associations are racing to issue guidance, relief, and information to assist the industry. This post addresses a number of the recent securities regulator announcements, and we will continue to send updates as regulator guidance and relief efforts continue.

Securities & Exchange Commission

The U.S. Securities and Exchange Commission (“SEC”) issued conditional relief in a number of areas affecting funds, advisers, and public companies with respect to meeting their regulatory obligations as they grapple with the impacts of coronavirus.

The SEC issued the relief via  companion Releases, one under the Investment Advisers Act of 1940, as amended, (the “IA Release”), and one under the Investment Company Act of 1940, as amended, (the “ICA Release”), as well as an Order addressing public company filings recognizing the disruption caused by COVID 19 and investor interest in timely corporate information.

Registered Investment Advisers

• In the IA Release, the SEC provided relief from (1) Form ADV amendment and delivery requirements and (2) Form PF filing requirements until April 30, 2020 to advisers who are unable to meet a filing deadline/delivery requirement as a result of the impact of COVID-19.
• An adviser relying on the relief must, among other things, provide notice to the Commission via email at IARDLive@sec.gov and provide notice on the adviser’s public website as prescribed in the IA Release.
• https://www.sec.gov/rules/other/2020/ia-5463.pdf

Registered Investment Companies and Business Development Companies

• In the ICA Release, the SEC provided relief from:
  • Certain in-person board of director voting requirements (until June 15, 2020),
  • Certain Form N-CEN and Form N-PORT filing deadlines (until April 30, 2020),
  • Annual and semi-annual report transmittal deadlines (until April 30, 2020) and
  • Form N-23C-2 filing deadlines following the call or redemption of securities by closed-end funds and business development companies (until June 15, 2020).
• In order to qualify for the relief, entities must satisfy certain conditions, including that they are unable to comply with the requirements due to the impact of COVID-19.
  • Other conditions include, but are not limited to, ratifying all non-in person votes taken in reliance on the relief at the next in-person meeting and, with respect to the filing relief, provide the specified notice to the Division of Investment Management of the SEC via email at EmergencyRelief@sec.gov.
• https://www.sec.gov/rules/other/2020/ic-33817.pdf

Public Companies

• On March 4^th, the SEC issued an Order granting an extension to public companies for filing certain reports with the SEC as long as certain conditions are met. See, SEC Provides Conditional Regulatory Relief and Assistance for Companies Affected by the Coronavirus Disease 2019 (COVID-19). https://www.sec.gov/news/press-release/2020-53; and Securities Exchange Act of 1934 Release No. 34-88318 (March 4, 2020). Order under Section 36 of the Securities Exchange Act of 1934 Granting Exemption from Specified Provisions of the Exchange Act and Certain Rules Thereunder. https://www.sec.gov/rules/other/2020/34-88318.pdf
• The SEC noted that “[t]he impacts of the coronavirus may present challenges for certain companies that are required to provide information to trading markets, shareholders, and the SEC. These companies may include U.S. companies located in the affected areas, as well as companies with operations in those regions.”
• Relief: Subject to specified conditions, publicly traded companies have an additional 45 days to file certain disclosure reports that would otherwise have been due between March 1 and April 30, 2020.
  • Among other conditions, companies must convey through an 8-K (current report) a summary of why the relief is needed in their particular circumstances.
• The SEC also granted registrants relief from furnishing proxy statements, annual reports, and other soliciting materials, as applicable, to security holders in areas where, as a result of COVID-19, mail delivery has been suspended, provided, however, that the registrant has made a good faith effort to furnish such soliciting or information materials in accordance with the rules governing the furnishing of such materials.
• With respect to the substance of the filings, Chairman Clayton provided the following guidance to Companies in the Release:
  • To the fullest extent possible, Companies should provide investors with insight regarding their assessment of, and plans for addressing, material risks to their business and operations resulting from the coronavirus so information on material events is disclosed.
  • Companies should work with audit committees and auditors to ensure that their financial reporting, auditing and review processes are as robust as practicable in light of the circumstances in meeting the applicable requirements.
  • Companies providing forward-looking information to keep investors informed about material developments, including known trends or uncertainties regarding coronavirus, can take steps to avail themselves of the safe harbor in Section 21E of the Exchange Act for forward-looking statements.
• Additionally, on March 13th, the SEC Division of Corporation Finance issued guidance designed to assist companies in complying with the federal proxy rules and shareholder meeting requirements given the public health and safety concerns relating to COVID-19.
  • Among other things, this guidance:
    • Provides that issuers may hold virtual meetings to the extent permitted by applicable state law. The guidance noted that issuers that have not already filed their definitive proxy materials should include clear disclosure and directions regarding such virtual meetings in their proxy materials.
    • Provides that an issuer that has already mailed its definitive proxy materials may notify shareholders of changes in the date, time or location of annual meetings without mailing additional soliciting materials or amending proxy materials provided certain conditions are met, including issuing a press release and filing the announcement as definitive additional soliciting material on EDGAR.
    • Encourages issuers to permit proponents of shareholder proposals to present them through alternative means during the 2020 proxy season.
  • https://www.sec.gov/ocr/staff-guidance-conducting-annual-meetings-light-covid-19-concerns?auHash=zrsDVFen7QmUL6Xou7EIHYov4Y6IfrRTjW3KPSVukQs

Financial Industry Regulatory Authority (“FINRA”)

FINRA has taken a number of steps to provide guidance and relief to the industry.

• On March 9^th, FINRA issued Regulatory Notice 20-08: Business Continuity Planning; Pandemic-Related Business Continuity Planning, Guidance and Regulatory Relief. https://www.finra.org/rules-guidance/notices/20-08
  • The Notice highlights firms’ Business Continuity Plan (“BCPs”) obligations and expectations around implementation in a pandemic situation. (FINRA also refers to Reg. Notice 09-59, which specifically addressed pandemic preparedness.)
  • Other areas addressed in the Notice specifically provide relief in connection with certain compliance obligations, including:
    • Remote Offices or Telework Arrangements
    • Cybersecurity
    • Form U4/Form BR
    • Emergency Office Relocations
    • Communicating with Customers
  • FINRA also highlighted the fact that pandemic emergencies at a firm may impact its ability to timely make regulatory filings (e.g., FOCUS filings, etc.) or timely respond to inquiries or investigations. FINRA noted that, if extra time is needed, firms should contact their Risk Monitoring Analyst or the relevant department seeking the information.
  • Military Personnel: FINRA also discussed the possibility that, in areas where declarations of emergency are declared, some personnel may volunteer or be called to active duty. If that is the case, Rule 1210 (registration) provides specific relief addressing licensing issues.
• FINRA has created a COVID-19 Resource Site: https://www.finra.org/rules-guidance/key-topics/covid-19, which consolidates the guidance that has been issued to date. As new information is issued by the regulator, this site will be updated. To date, areas covered include:
  • Impact on Membership Application Program
    • Pre-filing meetings and membership interviews for new and continuing membership applications will be conducted via video conference.
    • FINRA will grant a courtesy extension on new or continuing membership applications, if needed.
  • Postponement of In-Person Arbitration & Mediation Hearings
    • FINRA is postponing all in-person arbitration and mediation proceedings scheduled through May 1, 2020.
    • FINRA staff will be contacting the parties to reschedule or discuss remote scheduling options.
    • All other case deadlines continue to apply and must be timely met unless the parties jointly agree otherwise.
  • Extensions for Exam Candidates
    • FINRA will grant a courtesy cancellation of an upcoming exam appointment and/or extend the candidate’s existing enrollment period to take a FINRA exam.

Municipal Securities Rulemaking Board

On March 9^th, the MSRB issued MSRB Notice 2020-07: MSRB Reminds Regulated Entities of Application of Supervisory Requirements in Light of Coronavirus to remind firms of their supervision obligations pursuant to MSRB Rules G-27 and G-44, even during the operational challenges and disruption created by the coronavirus.

• With respect to each of G-27 and G-44, the MSRB noted that in light of the current challenges, supervision does not require in person supervision and that technology “plays a prominent role in how dealers conduct their supervisory reviews and a reasonably designed supervisory system could incorporate remote supervision.”

SIFMA

SIFMA has put together a robust site linking industry and regulatory guidance and announcement. BCP and COVID-19 Resources: https://www.sifma.org/resources/general/bcp/.

• This site includes, among other things:
  • Cybersecurity and Infrastructure Security Agency (CISA)
  • DTCC: Industry Operations
  • Exchange & CCP Guidance (CBOE, CME Group, ICE/NYSE, Nasdaq, Options Clearing Corp.)
  • Regulator Updates (SEC/FINRA, CFTC/NFA, MSRB, FCA, FFIEC)

We expect regulators will continue to issue new guidance and additional relief. We also anticipate that deadlines in the current relief issued may need to be extended further. We are monitoring the developments and will provide updates to our clients as information becomes available.  Please let us know if you have any questions or if there is anything else we can do to support you during this challenging time.