Compliance Considerations during the COVID-19 Crisis


NRS offers the following suggestions for how compliance officers may respond to the unique challenges we are all facing in the current Coronavirus pandemic.

As we have seen in previous economic or market crises, compliance responsibilities rapidly morph from typical regulatory concerns to identifying and understanding the impact of the crisis on all aspects of a firm’s business. In other words, in a crisis, all problems are potentially compliance problems.

Let’s begin with a couple of general thoughts:

First, practicality matters. Be sure your team is focusing on the possible, not necessarily the ideal.

Next, document your efforts, and encourage others to do the same. When things are moving quickly, documentation often seems to be a pointless distraction. Remember that you will want to be able to review (and, possibly, demonstrate to a regulator) the measures you took to ensure that you were meeting your duties to your clients.

Next, regularly review information not only from your regulators, but from the CDC, FEMA, and state and local authorities so that you can quickly adapt to changing requirements. A list of helpful links appears at the end of this article.

Finally, understand what is being lost through homeworking. Casual sharing of news or exchanges of ideas, unplanned encounters with colleagues, and dozens of other daily interactions with your co-workers will simply not happen in this new environment. Be sure to make yourself available beyond a simple “call me if you need me.” Remember to reach out and interact with your co-workers – even if just to ask if you can be of any help to them. Get them used to the idea that a call from Compliance does not mean that they are in trouble.

NRS suggests the following steps as a way to wrap your arms around what is going on in your shop and prepare a record that can be reviewed down the road. These guidelines should be adapted, as necessary, to your firm’s particular circumstances and response to the evolving crisis.

  • Do you fully understand how each department in your firm is addressing the current crisis?
    • Identify and document what is and is not working and what steps are being (aggressively) taken to correct current problems.
    • Determine if any of the steps the firm has taken:

      • Require additional notification or disclosure to clients and/or regulators.
      • Present newer or heightened risks or conflicts, and how those risks or conflicts may be mitigated.
      • Are inconsistent with current policies and procedures. If so, determine if P&Ps need to be updated, or if the steps being taken are fundamentally inconsistent with applicable rules and/or duties to clients.
    • Check in with each department frequently.
  • Do your clients understand the extent to which you are available, if any services are unavailable, and how they can reach you – particularly if offices are closed and/or staff are working from home?
  • Is your current Business Continuity/Disaster Recovery plan being followed?

    • Have parts of the current plan been overridden? If so, does the plan need to be changed, or should the existing plan be enforced?
    • Verify (through calls, video chat, e-mail, etc.) that persons working from home are following requirements for cybersecurity, privacy, use of personal devices, etc. to protect the integrity of firm systems and data as well as client nonpublic information.
    • Does your business continuity plan address long-term disruptions? Consider what might be needed if the current crisis lasts for months.
  • Are you staying on top of your regulatory obligations? Can you obtain the information you need to meet these requirements?

    • Filings
    • Internal Reports
    • Ongoing reviews and testing
    • Supervision

NEWS AND RESOURCES

SEC Examinations

The SEC will be continuing their examination programs. OCIE’s in-person meetings have been replaced with video or phone conferences during examinations. Staff have attempted to be accommodating with document submission deadlines.

Examiners will be particularly interested in:

  • BCP policies, effectiveness and adaptability,
  • Securities valuation processes,
  • Liquidity issues,
  • Adherence to policies and disclosures with respect to private fund redemption requests, lockups and gates, and
  • Frauds/schemes related to COVID-19.

Form ADV and PF Filing Deadlines

The SEC permits investment advisers to delay filing or delivering amendments to Form ADV and filing amendments to Form PF if their operations have been affected by the coronavirus and the filing or delivery date is between March 13 and April 20, 2020. This relief is available under these conditions:

  • The registered investment adviser or exempt reporting adviser must be unable to meet a filing deadline or delivery requirement due to circumstances related to current or potential effects of COVID-19;
  • The investment adviser relying on this Order promptly notifies the Commission, via email at IARDLive@sec.gov:

    • that it is relying on this Order;
    • a brief description of the reasons why it could not file or deliver its Form on a timely basis; and
    • the estimated date by which it expects to file or deliver the Form.
  • The registered investment adviser must 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 this Order;
    • a brief description of the reasons why it could not file or deliver its Form on a timely basis; and
    • the estimated date by which it expects to file or deliver the Form.
  • Any investment adviser relying on this Order with respect to filing Form PF required by Rule 204(b)-1 must:

    • promptly notify the Commission via email at FormPF@sec.gov stating:

      • that it is relying on this Order;
      • a brief description of the reasons why it could not file its Form on a timely basis; and;
      • the estimated date by which it expects to file the Form.
  • The investment adviser files the Form ADV or Form PF, as applicable, and delivers 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 full release is available at https://www.sec.gov/rules/other/2020/ia-5463.pdf.

Relief for other requirements

In a conference call on March 18, the Investment Adviser Association stated that it has made the SEC aware of concerns advisers have about their ability to make timely filings for Form 13F and to obtain personal securities transaction reports.

Online Resources

SEC Coronavirus response: https://www.sec.gov/sec-coronavirus-covid-19-response

FINRA coronavirus updates and guidance: https://www.finra.org/rules-guidance/key-topics/covid-19

State securities websites, go to https://www.nasaa.org/contact-your-regulator/ and click on the appropriate state(s).

Center for Disease Control: https://www.cdc.gov/coronavirus/2019-ncov/community/organizations/businesses-employers.html

How NRS can help

From virtual webinar sessions and on-demand learning through BlazeXpress self service education, to our industry leading technology platforms such as ComplianceGuardian and ComplianceMAX, and our consulting solutions designed to help you address your critical compliance needs, NRS can help you maintain your compliance responsibilities during these challenging times. Find how how we can help you by contacting us here.