March 25 Coronavirus Regulatory Updates
SEC Extends Relief for Adviser Filing Deadlines, Eases Conditions
Extends Relief for Fund Filing Deadlines and Board Meetings
Adds Flexibility for Obtaining Short-Term Funding, IFL Arrangements
NFA Extends Regulatory Relief for CPOs and CTAs
March 25, 2020
Following are recent updates from the SEC and the NFA related to disruptions caused by the coronavirus pandemic. We encourage you to share information about how your business operations are being affected by emailing IAALegalTeam@investmentadviser.org or by calling the Legal Team at (202) 293-4222. We continue to share your concerns with regulators during this challenging time.
1. SEC Extends Form ADV/PF Relief and Eases Conditions
The SEC today issued an order dropping conditions and expanding the period covered by its relief allowing for extensions of the deadlines to file Form ADV, file and deliver the ADV brochure, brochure supplement (if applicable), or summary of material changes, and file Form PF.
The new order supersedes the previous order and extends the timeframe for the relief to filing and delivery obligations for which the original due date is on or before June 30 (the original relief covered due dates through April 30). Advisers that are unable to meet their deadlines because of coronavirus disruptions may file and/or deliver the required documents within 45 days of the original due date.
The IAA had heard and shared with the SEC concerns from members about certain of the conditions that the SEC had imposed in its original order, including that advisers must provide a brief explanation for why they are relying on the relief and an estimated date for filing and/or delivery. The new order no longer includes these conditions but still requires that advisers notify the SEC by email to IARDLive@sec.gov and disclose on their public website that they intend to rely on the order.
The IAA is in contact with the SEC for clarification of certain issues related to the order and other issues.
2. SEC Extends Relief for In-Person Fund Board Meetings, Fund Filing Deadlines
The SEC today issued an order relating to registered funds that:
(i) Extends the time for relief from in-person fund board meetings from June 15 to August 15. See March 14’s SEC Provides Targeted Relief from Forms ADV and PF Deadlines,
In-Person Fund Board Meetings, Fund Filing Deadlines for the conditions fund boards must meet.
(ii) Extends the period covered from March 13 through April 30 to March 13 through June 30 for the filing of Forms N-CEN and N-PORT and for the transmittal of annual and semi-annual reports to investors under the Investment Company Act under certain conditions.
(iii) Extends the period covered from March 13 through June 15 to March 13 through August 15 for filing of Form N-23C-2 under the Investment Company Act under certain conditions.
3. SEC Extends Relief for Delivery of Fund Prospectuses
In the same funds-related order, the SEC extended its no-action relief for registered funds that are unable to timely deliver to investors their current prospectus for the period until June 30 (the original relief covered the period until April 30). Delivery would still need to be made as soon as practicable but no later than 45 days after the date originally required.
4. SEC Provides 45-Day Extension for 13F, Schedule 13G Filings
The SEC also issued a new order updating its 45-day extension for certain filings by public companies and those required to make filings with respect to public companies. The updated order extends the period covered from March 1 through April 30 to March 1 through July 1. The order applies to Form 13F and Schedule 13G filings, among others, but does not apply to Schedule 13D filings or amendments to Schedule 13D filings. See March 4 ‘s SEC Extends No-Action Relief for Fund Board Meetings Due to Coronavirus, Provides 45-Day Extension for Certain Corporate Filings for the conditions that must be met.
The order also continues to provide an exemption related to delivery of proxy statements and other materials under certain circumstances.
5. SEC Order Provides Funds Additional Flexibility in Obtaining Short-Term Funding
The SEC issued an order for open-end funds, other than money market funds, and insurance company separate accounts that are registered as unit investment trusts, to obtain short-term funding. The relief began March 23 and will end no earlier than June 30. For each exemption, the fund must e-mail SEC staff at IM-EmergencyRelief@sec.gov prior to relying on the relief stating that it is relying on the order. The order includes the following four sets of exemptions:
Borrowing from Affiliated Persons: The first exemption allows funds and separate accounts to borrow money from certain affiliates, other than registered investment companies. Relief is similarly provided to permit those affiliates to make collateralized loans to funds and separate accounts. The fund’s board must make certain findings, included that the borrowing will be used to satisfy shareholder redemptions.
Interfund Lending for Funds with Existing Interfund Lending Orders: A fund that has an order that permits an interfund lending and borrowing facility (IFL) is permitted to do the following:
- Make loans through the IFL in an aggregate amount that does not exceed 25 percent of its current net assets, even if there is a lower limit in the fund’s IFL order;
- Borrow (if permitted under the IFL order) or make loans through the IFL for any term notwithstanding conditions in the IFL order that limit the terms of loans, provided that certain requirements are satisfied; and
- Rely on relief discussed below related to fundamental investment policies.
The following requirements apply to this exemption:
- Any loan is otherwise made in accordance with the terms and conditions of the existing IFL order; and
- Prior to relying on the relief, the fund must disclose on its public website that it is relying on an SEC exemptive order that modifies the terms of the existing IFL order to permit additional flexibility to or provide or obtain short-term funding from its IFL.
Interfund Lending Arrangements for Funds without Existing Interfund Lending Orders: For a fund that does not have an interfund lending order, it may establish and participate in an IFL as described in any IFL order issued by the SEC order within the past twelve months (recent IFL order), provided that it satisfies the terms and conditions of the recent IFL order, except for certain requirements. Prior to relying on the relief, the fund must disclose on its public website that it is relying on the order to use an IFL. If the fund makes certain filings, it must update its disclosure regarding its participation in the IFL.
Ability to Deviate from a Fundamental Policy: A fund is permitted to enter into a lending or borrowing transaction that deviates from a fundamental policy without obtaining shareholder approval, provided that the fund’s board reasonably determines that the lending or borrowing is in the best interest of the fund and its shareholders, and the fund files a prospectus supplement and includes a statement on its public website.
See SEC Press Release SEC Provides Temporary Additional Flexibility to Registered Investment Companies Affected by Coronavirus.
6. NFA Announces Regulatory Relief for CPOs and CTAs
In response to the coronavirus crisis, the National Futures Association (NFA) issued a Notice to Members on March 23 announcing relief for filing delays for commodity trading advisors (CTAs) and commodity pool operators (CPOs). The NFA’s action follows the CFTC’s March 20 no-action relief for CPO filing deadlines under Rules 4.27, 4.22 and 4.7.
For CTAs: NFA Form PR for Quarter Ending March 31. NFA Rule 2-46 requires each CTA to file the NFA Form PR on a quarterly basis with NFA within 45 days after each quarter end. NFA is extending the requirement for CTAs to file the form for the quarter ending March 31 from May 15 to June 30.
For CPOs: Pool Annual Reports and Account Statements. NFA states that CPOs that are in compliance with the CFTC’s no-action relief providing a 45-day extension for pool annual reports under CFTC Rules 4.22(c) and 4.7(b)(3) due on or before April 30 (or May 15) will also be in compliance with NFA Rule 2-13 if the reports are filed with NFA and distributed to pool participants by that date.
NFA also states that CPOs that are in compliance with the CFTC’s relief for distribution of monthly or quarterly account statements to pool participants under CFTC Rule 4.22(b) or 4.7(b)(2) due on or before April 30 (or May 15) will also be in compliance with NFA Rule 2-13 if the statements are distributed to pool participants by that date.
7. Statement from SEC Enforcement Co-Directors on Preventing Misuse of Material Nonpublic Information (MNPI)
Stephanie Avakian and Steven Peikin, Co-Directors of the SEC’s Division of Enforcement, recently issued a public statement in which they emphasized “the importance of maintaining market integrity and following corporate controls and procedures.” They reminded those with access to MNPI “of their obligations to keep this information confidential and to comply with the prohibitions on illegal securities trading.” They also described controls and procedures that firms need to adhere to, such as:
- Disclosure controls and procedures;
- Insider trading prohibitions;
- Codes of ethics;
- Regulation FD; and
- Selective disclosure prohibitions.
Investment advisers were reminded to comply with policies and procedures designed to prevent the misuse of MNPI. The IAA is holding a member call on April 3 to discuss selective disclosure issues.
TAGS: Coronavirus, MNPI