March 26, 2020
Update: Our May 21, 2020, alert provides our most recent discussion of information and guidance issued by the SEC, FINRA, MSRB and SIFMA.
As McGuireWoods reported in a March 17, 2020, alert, “COVID-19: Securities Regulators and Industry Associations Issue Coronavirus Guidance and Relief,” financial services regulators have been issuing guidance and relief in real time to assist the industry as the novel coronavirus (COVID-19) continues to spread in the United States. This post provides an update on regulator announcements issued since that date.
Regulators continue to recognize the unprecedented uncertainty, disruption and strain industry participants are facing from COVID-19 and emphasize the importance of prioritizing health and safety. U.S. Securities and Exchange Commission Chairman Jay Clayton recently reflected on this and the role of regulators, saying:
“An immediate, effective response to COVID-19 requires substantial portions of our economy to function at full throttle, other sectors to function in different ways (e.g., telework) and more moderately, and some sectors to stand down. Our markets, and our policies, should support this tailored, multi-faceted, time-limited approach. And, just as COVID-19 has caused us to alter our economic activity by industry and region, we must, consistent with a continuing commitment to health and safety, prepare to thoughtfully and incrementally increase economic activity by industry and region. When that time comes — and here we should take our cues from health authorities and local and national leaders — we will benefit from maintaining the continuing function of our financial markets, and preserving the interconnections among of our industries and our workers, throughout this period of shared responsibility.”
See Also - Public Statement of SEC Chairman Jay Clayton for FSOC Open Meeting (March 26, 2020)
To assist regulated firms in carrying out their responsibilities and to serve customers, regulators are reviewing questions and requests for relief from the industry and associations. In many instances, the relief needs to be coordinated among regulators and those discussions are happening. In situations where firms confront new and unforeseen issues, they should contact their regulator.
Firms should not fear contacting their regulator because they think that a regulator will view their business continuity plans (BCPs) as deficient and consequently penalize the firm. The current situation of a global pandemic is unprecedented. If a firm had in place a reasonable BCP, as required under Financial Industry Regulatory Authority (FINRA) Rule 4370, subsequent questions or requests for relief from a regulator will not create a “gotcha situation.” If a firm is facing an unforeseen issue, chances are that many other industry participants are facing similar issues.
To be sure, regulators are balancing the need to protect investors, maintain market integrity and maintain orderly and fair markets. While meeting those goals, there is no question that regulators understand the magnitude of the challenges the industry is facing and are working hard to provide necessary guidance and relief, to the extent that doing so does not compromise those goals.
U.S. SECURITIES & EXCHANGE COMMISSION (SEC)
Additional Relief for Registered Investment Companies
On March 23, 2020, the SEC announced temporary borrowing and lending flexibility for registered investment companies (RICs) and insurance company separate accounts registered as unit investment trusts (UITs) affected by COVID-19 and its impact on the markets. The relief will be in place until at least June 30, 2020.
Money Market Fund Relief
The SEC Staff has also issued a no-action letter to the Investment Company Institute to permit money market funds (MMFs) to sell their securities to affiliates beyond what would typically be permitted by the ICA, provided that:
The MMF letter relief will continue in effect until the SEC provides notice that it is not.
Extended RIC, BDC and Adviser Relief
The SEC also issued an order on March 25, 2020, that, among other things, extended the time period of the previously provided relief for RICs and BDCs regarding in-person board voting, Form N-23 and Form N-CEN filing and shareholder report delivery. Each of the previously extended deadlines were generally extended an additional two months.
The SEC similarly extended the previously provided relief permitting investment advisers additional flexibility in the timing of their Form ADV and Form PF filings and deliveries.
Finally, the SEC issued a third order on March 25, 2020, that extended the relief it issued providing an extension to public companies for filing certain reports with the SEC. This relief has been extended to July 1, 2020.
Please refer to McGuireWoods’ March 17 alert for more discussion of the relief discussed in this section.
FINRA
Relief and Guidance
FINRA continues to update its “Frequently Asked Questions Related to Regulatory Relief Due to the Coronavirus Pandemic.” The areas currently addressed on this page are:
Per its most recent updates, FINRA is now providing the following temporary additional relief and reminders:
COMMODITY FUTURES TRADING COMMISSION (CFTC) and NATIONAL FUTURES ASSOCIATION (NFA) GUIDANCE
The CFTC has also been active in issuing relief to market participants impacted by COVID-19. In a series of letters, the CFTC has, among other things and subject to certain conditions:
The NFA separately issued guidance and relief to its members, including providing relief for members to permit their associated persons to work from home without treating such home office as a branch office.
MUNICIPAL SECURITIES RULEMAKING BOARD (MSRB)
On March 25, the MSRB announced it would publish daily analysis of trade activity to assist market participants, policymakers and the general public with understanding the impact of COVID-19 on the liquidity of the $4 trillion municipal securities market.
STATE REGULATORS
State regulators have also been active in issuing guidance and relief regarding the impacts of COVID-19. Highlighted below are a few of the most relevant state regulatory developments. The North American Securities Administrators Association (NASAA) has established a comprehensive resource page collecting COVID-19 related updates from state and provincial securities regulators.
New Jersey Bureau of Securities
The New Jersey Bureau of Securities issued an emergency order that will remain in effect until April 30, 2020, unless extended or rescinded. The emergency order provides:
The Bureau also reminded investors to beware of fraudsters seeking to capitalize on market uncertainty and public concerns related to the global pandemic.
Florida Office of Financial Regulation
On March 20, 2020, the Florida Office of Financial Regulation (OFR) issued an emergency order extending OFR license renewal deadlines occurring in March and April 2020 for a period of 30 days. The OFR also issued guidance to Florida’s consumer finance businesses and professionals.
Massachusetts Securities Division
The Massachusetts Securities Division issued an emergency notice providing the following relief:
Potential Blue Sky Issues
As noted below, McGuireWoods is separately providing updates with respect to relief provided to public companies in connection with the impacts of COVID-19. Broker-dealers should be aware, however, that the extended filing deadlines for public company reporting may raise questions regarding blue sky compliance with regard to certain securities transactions. For example, issuers who are public companies trading on a designated exchange who are current on their public reporting would be deemed to be exempt issuers for blue sky purposes. While public companies relying on the various COVID-19-related filing extensions will not be out of compliance with their reporting obligations if they comply with the conditions for relief, this may be an area where further inquiry is necessary by firms recommending such issuers’ securities to their customers.
MOVING FORWARD
Expect regulators to continue to issue new guidance and additional relief. Deadlines in the current relief issued may need to be extended further. McGuireWoods is monitoring the developments and will provide updates to clients as information becomes available. Please let us know if you have any questions or if there is anything we can do to support you during this challenging time.
McGuireWoods’ COVID-19 Response Team helps clients navigate urgent and evolving legal and business issues arising from the novel coronavirus pandemic. Lawyers in the firm’s 21 offices are ready to assist quickly on questions involving healthcare, labor and employment, education, real estate and more. For assistance, contact a team member listed or send an email to [email protected].
McGuireWoods has published additional thought leadership related to how companies across various industries can address crucial COVID-19-related business and legal issues.