Bates Research  |  03-19-20

Financial Regulatory Guidance, Assistance and Relief Roundup

Financial Regulatory Guidance, Assistance and Relief Roundup

The volume and urgency of general coronavirus news can seem overwhelming. For financial professionals, separating the facts from the hype is important. Since our last post, financial regulators have pushed out reminders about ongoing compliance obligations, deadline extensions, various general investor “tips” and notifications as to how, for example, the agencies are coping with their own organizational issues. (Note: they remain “fully operational and committed” to their respective missions.)

The challenge for financial firms and investors is to keep on top of the latest communications, understand what is actionable and what is not, and ensure that compliance and supervision processes are in place to manage the crisis. Bates continues to monitor it all. Here’s a recap of the latest compliance guidance, regulatory assistance and relief offered by the SEC, FINRA, NFA and MSRB. (Next, we will look at the latest enforcement warnings and guidance from other financial regulators.)

SEC Gets Practical

SEC Offers Compliance and Disclosure Reminders

In late January, SEC Chair Jay Clayton reminded issuers that the coronavirus and its impacts may be material to investment decisions and to make sure that they pay attention to proper disclosures. A few weeks later, SEC leadership, together with the Public Company Accounting Oversight Board, advised market participants to ensure that their financial reports and auditing processes were in order so that they could reflect unforeseen circumstances consistent with their obligations. That joint statement also offered assurance that the agency would grant relief from filing deadlines (i) beyond the control of the issuer, and (ii) in cases where filings cannot be completed on time or with the appropriate level of review and attention. These statements were general reminders, but were issued in the context of agency concerns about companies that had operations and subsidiaries doing business in China. 

SEC Offers Compliance Filing Flexibility

In the past few weeks, the SEC’s posture became significantly more concrete. With the growing realization that the coronavirus had the potential to make it more difficult to gather required information, on March 4, 2020, the SEC issued an Order granting 45 days’ conditional relief from compliance filing obligations to companies that may be challenged in assembling and providing required reports to trading markets, shareholders and the SEC (particularly to companies operating in affected areas like China). The SEC again reminded companies to provide investors with any insight that may be considered a material development and to take the necessary steps to avoid selective disclosures. (See related Alert concerning SEC communications extending the filing and delivery of the Form ADV due to COVID-19)

SEC Offers Board and Shareholder Compliance Relief

On March 13, 2020, the SEC issued two Orders (see here and here) effectively providing relief for funds and investment advisers whose operations may be affected by the coronavirus “due to restrictions on large gatherings, travel and access to facilities, the potential limited availability of personnel and similar disruptions.” Under the Orders, the SEC is expressly granting permission for boards of directors of registered management investment companies and business development companies to fulfill their obligations “by any means of communication that allows all directors participating to hear each other simultaneously during the meeting;” (i.e. virtual board meetings.) The formal relief comes on the heels of the SEC Division of Investment Management's March 4th, 2020 statement that the agency “would not recommend enforcement action if fund boards do not adhere to certain in-person voting requirements in the event of unforeseen or emergency circumstances affecting some or all of the directors” as a result of “the current and potential effects of COVID‑19.”

SEC Offers Warnings on Coronavirus Fraud

The SEC Office of Investor Education and Advocacy issued an alert to warn investors about fraud involving claims that a company’s products or services will be used to help stop the coronavirus outbreak. (Bates will cover enforcement issues in more detail in our next post.) In particular, the Office noted that investors should be wary of “so-called research reports” that make predictions that contain a specific target price and of any “pump and dump” schemes that involve microcap stocks.


SEC, FINRA, MSRB and NFA Cover Business Continuity

In a March 3rd, 2020 statement, the SEC Division of Investment Management advised investment advisers and funds “to evaluate their business continuity plans (“BCPs”) and valuation procedures, among other relevant policies, procedures and systems.” This recommendation was underscored the next day by the derivatives self-regulatory organization National Futures Association (“NFA”), and a week later by FINRA, which detailed the essential elements of such a plan under prescribed rules.

On March 4, 2020, the NFA reminded its members to review their BCPs to ensure that they can adequately address risks associated with the coronavirus to “clearing firms, telecommunications networks, third party providers, internal departments, mail or email services, utilities, etc.,” and to “assess the risks a pandemic poses to those relationships, and understand how a pandemic may materially impact their businesses.”  The NFA also urged firms to make sure they had up-to-date contact information for key employees.

With far more specificity, on March 9, 2020, FINRA issued a broad Regulatory Notice covering member obligations under FINRA Rule 4370 which requires: (i) members to create, maintain and review procedures to address an emergency or significant business disruption, (ii) that the BCPs be reasonably designed to enable the member to meet its existing obligations to customers, and (iii) that the BCPs take into consideration existing relationships with other broker-dealers and counter-parties. In the Notice, FINRA reminded firms to consider whether their BCPs “are sufficiently flexible to address a wide range of possible effects in the event of a pandemic in the United States.” Considerations include staff absenteeism, travel or transportation limitations, risks associated with remote offices and telework arrangements, cybersecurity and technology interruptions or slowdowns.

The landscape is shifting dramatically. FINRA will continue to make interpretive and no-action decisions quickly in the coming days. For detailed updates, FINRA has set up a dedicated Coronavirus related web page to provide information on rule compliance extensions, notices and other guidance for member firms, investors and other stakeholders. The site is an important reference as FINRA continues to respond to a range of concerns (e.g. from broad investor alerts to member applications and mediation and arbitration postponements).

Supervision and Control Issues under BCPs

FINRA urged member firms to review supervisory control policies and procedures under their BCPs to ensure effective communications with customers and to support customer access to funds and securities during the crisis. These supervisory concerns are highlighted because of branch office rule limitations and as a result of the rush to alternative and telework arrangements. Notably, FINRA informed member firms that it is temporarily suspending requirements to update Form U4 information for registered persons who are temporarily relocated; and to submit branch office applications on Form BR for temporary office locations or space-sharing arrangements.

Similarly, on March 16, 2020, NFA told its members that they would allow associated persons to temporarily work from home under their business contingency plans, provided that the firm (i) institutes adequate supervisory methods, (ii) meets its recordkeeping requirements and (iii) "ensure[s] that these procedures are documented."

MSRB addressed the same issues concerning remote supervision in a March 10th, 2020 Notice on the “Application of Supervisory Requirements in Light of Coronavirus.” The Notice covered MSRB rules that require broker-dealers and municipal advisors to implement a system to supervise municipal advisory activities, and asserts that under the rules, firms may incorporate remote supervision using technological resources.



As the coronavirus takes its course, regulators will be getting more and more specific with their compliance guidance, regulatory assistance and relief. Bates will continue to monitor and summarize these regulatory developments.

We know that the current crisis is a challenging time for you, your families and your businesses. Our practice leaders, consultants and experts are available to answer your questions and be a source of knowledge to in-house and outside counsel, and our clients’ compliance, risk, supervision, audit and business teams to help them through this period. Please do not hesitate to reach out to us for any reason.


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