SEC and FINRA Take Action to Address COVID-19 Impacts

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Latham & Watkins LLPIn the wake of COVID-19, the SEC and FINRA are taking steps to support markets and market participants.

The US Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority, Inc. (FINRA) continue to monitor and address ongoing impacts of COVID-19 to US capital markets and securities industry participants. These latest support and regulatory measures include the following:

  • SEC Forms Investor Advisory Committee Focusing on COVID-19: On April 24, 2020, the SEC announced the formation of a COVID-19 Market Monitoring Group comprised of senior-level directors from across a number of SEC divisions. The Group will assist with analysis and actions related to the effects of COVID-19 on markets, issuers, and investors. The group will also respond to requests for information, analysis, and assistance from regulators, financial agencies, and public sector partners, such as the President’s Working Group on Financial Markets, the Financial Stability Oversight Council, and the Financial Stability Board.
  • SEC Provides for Phased CAT Broker-Dealer Reporting Timelines with Conditional Exemption for Impacts of COVID-19: On April 20, 2020, the SEC issued two exemptive orders to minimize issues related to the implementation of the Consolidated Audit Trail (CAT). The first order establishes a phased equity and options reporting timeline for broker-dealers. It provides a certain amount of relief from COVID-19-related impacts by permitting a delayed start to CAT reporting, conditioned upon compliance with obligations and milestones related to testing and releases of CAT functionality. The second order permits introducing brokers that meet certain requirements to follow the small broker-dealer reporting timeline. Specifically, introducing brokers who did not qualify as small broker-dealers for the purposes of the CAT NMS Plan are now permitted to follow the CAT reporting timeline applicable to small broker-dealers if they meet the net capital requirements for small broker-dealers as defined in Rule 0-10(c)(1) under the Securities Exchange Act of 1934.
  • FINRA Working to Provide Qualification Exams and Continuing Education Online: In the wake of COVID-19 social distancing measures, FINRA and the North American Securities Administrators Association (NASAA) announced a joint effort to deliver remote testing services for candidates in the near future. The service is expected to begin with the Securities Industry Essentials (SIE) Exam, Series 6, Series 7, Series 63, and Series 66, and will expand exam offerings by June 2020. In addition to these efforts, FINRA has pledged that it will extend all exam enrollment windows and continuing education requirements that are currently expired, or will expire, between March 16 and May 2020. Each FINRA-administered exam enrollment or continuing education end date will be extended through the same end date of May 31, 2020.
  • FINRA Approach to Reg BI and Form CRS Compliance Obligations: On April 7, 2020, the SEC’s Office of Compliance Inspections and Examinations (OCIE) published Risk Alerts addressing compliance with Reg BI and Form CRS The Risk Alerts were issued to provide SEC-registered broker-dealers and investment advisers with information about the scope and content of initial examinations after the June 30, 2020, compliance date for Reg BI and Form CRS. FINRA issued a statement on April 8, 2020, noting that it will take the same approach as the SEC when examining broker-dealers and their associated persons for compliance with Reg BI and Form CRS. The approach outlined by the SEC will focus primarily on assessing whether firms have made a good faith effort to establish and implement policies and procedures reasonably designed to comply with Reg BI and Form CRS. While SEC Chairman Jay Clayton announced that the compliance dates for Reg BI and Form CRS have not been postponed by the SEC in the wake of COVID-19, OCIE and FINRA have pledged to work constructively with firms facing implementation challenges due to COVID-19, but that are making good faith and reasonable efforts at compliance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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