Securities and Exchange Commission Relief for Investment Advisers to Mitigate Challenges Caused by the Coronavirus

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Foley & Lardner LLPThe Securities and Exchange Commission (SEC) has recognized that coronavirus disease 2019 (COVID-19) has caused, and may cause, disruptions that limit investment advisers’ access to facilities, personnel, and third party service providers, and that as a result advisers may face challenges in complying with provisions of the Investment Advisers Act of 1940 (“Advisers Act”) and the rules thereunder.  So, the SEC has taken steps to mitigate some of these challenges:

SEC Order Granting Extension of Filing Deadlines for Form ADV and Form PF

The SEC has issued an Order under Section 206A of the Advisers Act that permits the following, but only if certain conditions are met:

  1. Registered investment advisers that are required to file an amendment to Form ADV on or after March 13, 2020 but on or prior to April 30, 2020 may file the amendment up to 45 days after the original due date.
  2. Registered investment advisers that are required to deliver their firm brochure, summary of material changes, or brochure supplement to existing clients on or after March 13, 2020 but on or prior to April 30, 2020 may deliver the Firm Brochure up to 45 days after the original due date.
  3. Registered investment advisers and exempt reporting advisers that are required to file a Form PF on or after March 13, 2020 but on or prior to April 30, 2020 may file the Form PF up to 45 days after the original due date. 
  4. Exempt reporting advisers that are required to file reports on Form ADV on or after March 13, 2020 but on or prior to April 30, 2020 may file the reports up to 45 days after the original due date.

In order for a registered investment adviser or an exempt reporting adviser to rely on the delayed deadlines, the following conditions must be met:

  • The registered investment adviser or exempt reporting adviser must be unable to meet the filing deadline or delivery requirement due to circumstances related to current or potential effects of COVID-19.
  • The investment adviser relying on the Order with respect to the filing of Form ADV or delivery of its firm brochure, summary of material changes, or brochure supplement must promptly provide the SEC via email at IARDLive@sec.gov and disclose on its public website (or if it does not have a public website, promptly notify its clients and/or private fund investors of the following information:
    • that it is relying on the Order;
    • a brief description of the reasons why it could not file or deliver its Form ADV on a timely basis; and
    • the estimated date by which it expects to file or deliver the Form ADV.
  • The investment adviser relying on the Order with respect to filing Form PF required must promptly notify the SEC via email at FormPF@sec.gov stating:
    • that it is relying on the Order; 
    • a brief description of the reasons why it could not file its Form PF on a timely basis; and 
    • the estimated date by which it expects to file the Form PF. 
  • The investment adviser must file the Form ADV or Form PF, as applicable, and deliver the brochure (or summary of material changes) and brochure supplement as soon as practicable, but not later than 45 days after the original due date for filing or delivery, as applicable. 

The SEC order granting the extension of filing deadlines for From ADV and Form PF is available here..

New FAQ Providing Relief Regarding the Reporting of Teleworking Addresses in Form ADV

The SEC has stated in its FAQs that an investment adviser is not required to update either Item 1.F of Part 1A of Form ADV or Section 1.F of Schedule D of Form ADV in order to list the temporary teleworking addresses of its employees, when the employees are temporarily conducting investment advisory business from a temporary location as part of the firm’s business continuity plan due to circumstances related to COVID-19.

The new FAQ providing relief from reporting teleworking addresses in Form ADV is available here.

Modified FAQ on Custody Rule Providing Relief when Adviser Inadvertently Receives Securities from Clients at an Office Location that is Temporarily Close

The SEC has said in its FAQs that it is a breach of the custody rule for an investment adviser that inadvertently receives securities from a client to forward those securities to the qualified custodian.  Instead, the firm must return the securities to the client within three business days.  There is a longer period for (1) tax refunds from tax authorities; (2) client settlement proceeds from administrators in connection with class action lawsuits and other legal action; and (3) stock certificates, dividends, or evidence of new debt from issuers in connection with class action lawsuits involving bankruptcy or business reorganization, which must be returned to clients within five business days of receipt. 

As an investment adviser’s personnel may be unable to access mail or deliveries at an office location due to the firm’s business continuity plan in response to circumstances related to COVID-19), the SEC will not consider the adviser to have received client assets at that office location until firm personnel are able to access the mail or deliveries at that office location.

The newly modified FAQ on the custody rule (Question II.1) addressing advisers that inadvertently receive securities from clients at an office location that is temporarily closed, is available here.  

For additional web-based resources available to assist you in monitoring the spread of the coronavirus on a global basis, you may wish to visit the CDC and the World Health Organization

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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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