The 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:
The SEC has issued an Order under Section 206A of the Advisers Act that permits the following, but only if certain conditions are met:
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 SEC order granting the extension of filing deadlines for From ADV and Form PF is available here..
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.
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 more information about recommended steps, please contact your Foley relationship partner. 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.
Foley has created a multi-disciplinary and multi-jurisdictional team, which has prepared a wealth of topical client resources and is prepared to help our clients meet the legal and business challenges that the coronavirus outbreak is creating for stakeholders across a range of industries.
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