Category Compliance newsflash

The U.S. Securities and Exchange Commission (SEC) Division of Investment Management has provided guidance to investment advisers on numerous topics in response to COVID-19. The SEC's Office of Compliance Inspections and Examinations (OCIE) has also announced its exam priorities related to COVID-19.

FINRA warns member firms of a widespread, ongoing phishing campaign that involves fraudulent emails purporting to be from FINRA officers, including Bill Wollman and Josh Drobnyk. These emails have a source domain name "@broker-finra.org" and request immediate attention to an attachment relating to your firm. In at least in some cases, the emails do not actually include the attachment, in which case they may be attempting to gain the recipient's trust so that a follow-up email can be sent with an infected attachment or link, or a request for confidential firm information. In other cases, what appears to be an attached PDF file may direct the user to a website which prompts the user to enter their Microsoft Office or SharePoint password. FINRA recommends that anyone who entered their password change it immediately and notify the appropriate individuals in their firm of the incident.

The global COVID-19 pandemic has affected virtually all businesses. Some have scaled back operations or close completely, while others have enacted business continuity plans (BCPs) and have ordered employees to work from home. Private fund managers have faced many of the same operational challenges, in addition to having to contend with horrific market conditions marked by a lack of liquidity, extreme volatility, and a bear market in almost every asset class.

The Securities and Exchange Commission announced last week that it has voted to propose a new rule that would establish a framework for fund valuation practices. The rule is designed to clarify how fund boards can satisfy their valuation obligations in light of market developments, including an increase in the variety of asset classes held by funds and an increase in both the volume and type of data used in valuation determinations.

On April 7, 2020, the SEC's Office of Compliance Inspections and Examinations (OCIE) released Risk Alerts for Reg BI and Form CRS. These Risk Alerts set forth OCIE's expectations for firms' compliance with Reg BI and Form CRS and provide broker-dealers with information about the scope and content of OCIE's initial examinations following the compliance date of June 30, 2020. FINRA will take the same approach as set forth in the SEC Risk Alerts when FINRA examines broker-dealers and their associated persons for compliance with Reg BI and Form CRS. This initial approach 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.

On April 7, 2020, the SEC's Office of Compliance Inspections and Examinations (OCIE) released Risk Alerts for Reg BI and Form CRS. These Risk Alerts set forth OCIE's expectations for firms' compliance with Reg BI and Form CRS and provide broker-dealers with information about the scope and content of OCIE's initial examinations following the compliance date of June 30, 2020. FINRA will take the same approach as set forth in the SEC Risk Alerts when FINRA examines broker-dealers and their associated persons for compliance with Reg BI and Form CRS. This initial approach 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.

Due to the coronavirus pandemic (COVID-19), FINRA is providing temporary relief for member firms from rules and requirements in a set of Frequently Asked Questions. The relief provided does not extend beyond the identified rules and requirements. FINRA will continue to monitor the situation to determine whether additional guidance and relief may be appropriate. As coronavirus-related risks decrease, member firms should expect to return to meeting any regulatory obligations for which relief has been provided. When appropriate, FINRA will publish a Regulatory Notice announcing a termination date for the regulatory relief that will provide member firms with time to make necessary operational adjustments.

The Securities and Exchange Commission's Office of Compliance Inspections and Examinations (OCIE) has issued two risk alerts: Examinations that Focus on Compliance with Regulation Best Interest and Examinations that Focus on Compliance with Form CRS. These risk alerts provide broker-dealers and investment advisers with advance information about the expected scope and content of the initial examinations for compliance with Regulation Best Interest and Form CRS. Regulation Best Interest and Form CRS are key components of a broader package of rules and interpretations, adopted contemporaneously on June 5, 2019, to enhance the quality and transparency of retail investors' relationships with broker-dealers and investment advisers. The compliance date for Regulation Best Interest and Form CRS is June 30, 2020.

The the Securities and Exchange Commission announced that it is providing additional temporary regulatory relief to market participants in response to the effects of the Coronavirus Disease 2019 (COVID-19). The actions announced involve (1) parties needing to gain access to make filings on the EDGAR system, (2) certain company filing obligations under Regulation A and Regulation Crowdfunding, and (3) a filing requirement for municipal advisors.

The new coronavirus that causes COVID-19 has rapidly changed the way U.S. broker-dealers must conduct business as states implement various shelter-in-place and stay-at-home orders, forcing workers remote. The shift has a number of implications when it comes to business continuity plans, the security of firm's networks and the ability to comply with various rules and requirements. On this episode, our first to be remotely recorded, we talk to FINRA's Chief Legal Officer Bob Colby and Head of Member Supervision Bari Havlik to learn what FINRA expects at this time and how firms-and FINRA-are adapting to the current situation.