As the COVID-19 pandemic has caused rapidly increasing disruption to all sectors of the U.S. economy, the Securities and Exchange Commission (SEC) and its staff first granted, and then expanded upon, relief to funds and investment advisers.
Similarly, the Commodity Futures Trading Commission (CFTC), the National Futures Association (NFA) and their staffs have granted relief from regulatory requirements to commodity pool operators (CPOs) and commodity trading advisers (CTAs).
We begin with a summary of the relief provided as of March 30, 2020 with respect to fund boards, funds, prospectus delivery, investment advisers, electronic filings, CPOs and CTAs. Afterwards, we discuss noteworthy aspects of the relief.
The NFA also has extended the deadline for CTAs to file NFA Form PR for the quarter ending March 31, 2020 from May 15, 2020 to June 30, 2020. The CFTC reminded CPOs and CTAs that they are expected to establish and maintain a supervisory system that is reasonably designed to supervise the activities of personnel while acting from an alternative or remote location during the COVID-19 pandemic.
In our view, the most notable observation is that the SEC has been flexible and willing both to respond quickly, and to adjust responses quickly, in light of the manner in which the pandemic has unfolded. At the beginning of March, it was the staff of the Division of Investment Management (IM), and not the SEC itself, that was providing relief to funds, and only with respect to the requirement to hold in-person board meetings otherwise required under the Investment Company Act of 1940 (1940 Act) or 1940 Act rules. By the middle of the month, the SEC itself was issuing orders to relax filing deadlines and report transmittal deadlines that otherwise would apply to funds, as well as granting an exemption from the in-person board meeting requirements that the IM staff previously addressed through no-action relief. However, the SEC exemptive orders required persons seeking to rely upon the orders with respect to filing or report transmittal deadlines to provide a brief description of the reasons why it could not file its report on a timely basis as well as the estimated date by which it expected to be able to meet its filing or transmittal requirement. Fewer than two weeks later, the SEC modified its order to lengthen the extensions previously granted and to remove the requirements that those seeking to rely upon the order describe why they are relying on the order or estimate a date by which the required action will occur.
On a related note, the SEC staff has been proactively reaching out to industry trade groups and their members to learn about the impacts of the pandemic upon funds and advisers, as well as to reassure parties that reliance upon the exemptive relief would not cause them to become targets of an SEC inspection. We believe that this represents a concerted effort by the SEC staff to communicate to funds and advisers that the staff understands that the pandemic represents a time that is anything but “business as usual” and that the SEC will not be reluctant to use its authority to “conditionally or unconditionally exempt any person, security, or transaction, or any class or classes of persons, securities, or transactions,” from any requirement under the 1940 Act or the Investment Advisers Act of 1940 if it believes that any such exemption “is necessary or appropriate in the public interest and consistent with the protection of investors”.