SEC Makes Updates to Regulatory Relief Guidance

WHAT HAPPENED?

Earlier this week, the SEC made updates to a set of frequently asked questions (“FAQs”) intended to provide guidance on COVID-19 regulatory relief. The updates include new information about custody rule requirements, reporting and potential disclosure obligations relating to the Paycheck Protection Program (“PPP”), and procedures for delayed brochure delivery to wrap fee program participants. Details from the updates are as follows:

KEY TAKEAWAYS

Custody Rule Requirements

  • The deadline for distributing audited financial statements is now extended.
  • Previously, pooled investment vehicles had 120 days, funds of funds and pools investing in funds of funds had 180 days, and top tier pooled investment vehicles investing in funds of funds had 260 days after the fund’s fiscal year end to distribute statements.
  • The SEC stated in the FAQ that it will not recommend enforcement action if the original deadline was unable to be met due to “unforeseeable circumstances.”

PPP Reporting Obligations

  • As fiduciaries, investment advisers are required to make full and fair disclosure to clients.
  • If a firm receives PPP funding and the funds or the circumstances leading to obtaining the funds are material facts relating to the advisory relationship, this information must be disclosed to clients.
  • The information required may consist of the nature, amount, and effects of the PPP assistance.
  • If employees responsible for performing advisory functions are receiving the funds, this information should be disclosed to clients.
  • If a firm cannot meet its contractual obligations to clients, disclosure must be made in Form ADV Part 2 Item 18 or Appendix 1, as applicable.

Delayed Brochure Delivery

  • If an investment adviser has partnered with a third-party wrap fee program sponsor that is responsible for delivering the Form ADV Part 2A Brochure to program participants and is unable to due to COVID-19, the adviser may utilize the SEC’s extended deadline order for brochure delivery.
  • To take advantage of the relief, the adviser must:
    • Promptly notify the SEC that it is relying on the order at IARDlive@sec.gov; and
    • Disclose on its public website that it is relying on the order.
  • The wrap fee program sponsor may notify the SEC on the adviser’s behalf if it names all advisers for which the relief will apply and represents that it has permission to submit the communication for the advisers.
  • The brochure must be delivered to clients as soon as possible and no later than 45 days after the original deadline.

WHAT DOES THIS MEAN FOR ME?

If your firm is affected by any of the above provisions, you may apply the SEC’s regulatory relief guidance. Fairview recommends that your firm stay on track with all original deadlines, to the extent possible, and not rely on regulatory relief unless deemed necessary. If your firm is having trouble meeting regular deadlines because of COVID-19, Fairview may be able to help. Contact us to see how we can support your firm or if you have questions about the SEC’s COVID-19 regulatory relief guidance.

By | 2022-12-20T08:45:25-05:00 Apr 30th, 2020|Disaster Recovery and Incident Response, Enforcement, U.S. Securities and Exchange Commission|

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