COVID-19: The Regulatory Response
March 12th | 2020
While the market has been fluctuating tremendously the past several days, the regulators have been busy trying to formulate a response. The information below summarizes the key objectives of the regulators during this time:
REVIEW YOUR BCP PLAN: Remember that having this plan in place and being able to successfully execute on the plan during a time of crisis is part of effectively supervising your organization. Failure to have a plan, or failing to execute on it to the detriment of investors or clients is a serious matter.
MIND YOUR DEADLINES: RIAs will still have to re-file ADVs by March 30th. CBOE regulated BDs will still have to conduct a rule 4.24 annual review by March 30th. We expect no relief from the April 29th PF deadline. Except in narrow circumstances (described below), regulators have stopped short of granting blanket relief from any regulatory obligations.
Below are a few notable highlights of the current guidance with respect to the coronavirus.
U.S. Securities and Exchange Commission
The SEC’s Office of Compliance Inspections and Examinations (OCIE), which conducts the SEC’s National Exam Program, has not yet issued any guidance regarding the coronavirus. Accordingly, firms in the midst of an exam or investigation should discuss the coronavirus’ impact with their OCIE contact. Firm may also want to monitor OCIE’s announcement page for future updates.
The SEC’s Division of Investment Management staff has signaled it will grant no-action relief for fund boards who may have in-person voting requirement.
The SEC’s Division of Investment Management has further stated:
The Division encourages investment advisers and funds to contact the Division staff with any concerns they have related to the staff letter or to current or potential effects of COVID-19 on their operations, including any need for relief or guidance, at 202-551-6825 or email at [email protected]. In addition, as investment advisers and funds plan and prepare for any potential impacts, the Division encourages them to evaluate their business continuity plans and valuation procedures, among other relevant policies, procedures and systems.
FINRA’s guidance encourages firms to review their business continuity plans and some relief from U4 filing requirements. Accordingly, FINRA’s expectation is that firms ensure their supervisory system is reasonably designed to supervise their associated persons while working from an alternative or remote location during the pandemic.
FINRA members that require extra time to respond to open inquiries, investigations or upcoming filings should contact their Risk Monitoring Analysts or the relevant FINRA department to seek extensions. Notably, FINRA’s notice implies that there will be a high bar for requests for relief from filing requirements related to protecting customer funds and securities (e.g., SEC Rule 15c3-3).
FINRA is temporarily suspending the requirement to maintain updated Form U4 information regarding office of employment address for registered persons who temporarily relocate due to COVID-19. In addition, member firms are not required to submit branch office applications on Form BR for any newly opened temporary office locations or space-sharing arrangements established as a result of recent events.
NFA and CFTC
The National Futures Association has stated that “In the event that regulatory relief is necessary, NFA and CFTC staff intend to take a practical approach that will give Members appropriate flexibility in implementing contingency plans needed to continue to conduct business.”