Friday, 3 April 2020

Clayton addresses resource allocation, rulemaking, and Reg. BI implementation

By Amy Leisinger, J.D. 


SEC Chairman Jay Clayton recently addressed the Commission’s efforts to respond to changes related to the COVID-19 pandemic. The chairman noted that the agency has been helping market participants continue their business operations in the face of the challenges presented by the virus, including facilitating a shift to business continuity plans consistent with health directives and guidance. In particular, he said, the SEC has assisted in the move by securities exchanges to an all-electronic trading environment, as well as provided targeted, conditional relief related to filing deadlines. The SEC also has extended proposal comment periods to offer more time to submit positions, according to the chairman.

“We do not expect to move forward on any of those proposed actions before May 1, 2020,” Clayton said.

Resources. The SEC is putting health and safety first, but Clayton stresses that “the law continues to apply.” The Commission must allocate resources in the best interests of both investors and the capital markets, he explained. The agency is focused on ensuring that registrants continue to provide material information promptly to investors, particularly regarding the impact and expected effects of COVID-19, according to Clayton. The SEC staff also has provided guidance to assist in the consideration of disclosure obligations in relation to companies’ assessments of the potential operational effects of COVID-19, the chairman noted.

Regulation BI. Financial professionals must not put their interests ahead of the customers’ interests, Clayton stressed, and this approach is particularly crucial in these times of economic uncertainty. Adopted in June 2019, Regulation BI created a new standard of conduct for broker-dealers when making recommendations to retail customers and a requirement for brokers and investment advisers to disclose relationship summaries to retail investors. Firms have made considerable progress in adjusting their business practices and policies and procedures to prepare for the requirements of Regulation BI and related Form CRS obligations, Clayton stated. Because of continued implementation progress, the Commission believes that the June 30, 2020, compliance date remains appropriate, he said. The chairman urged companies to continue to make good faith efforts to ensure compliance by that date and devote resources as appropriate in light of current circumstances.

“To the extent that a firm is unable to make certain filings or meet other requirements because of disruptions caused by COVID-19, including as a result of efforts to comply with national, state or local health and safety directives and guidance, the firm should engage with us,” Clayton said.

Following the compliance date, according to the chairman, SEC examiners will focus on whether firms have made a good faith effort to implement compliance. The SEC and its staff have provided several resources to assist firms in working toward implementation of these significant regulatory enhancements for the benefit of investors, he noted.

“It is my intent to continue to apply this pragmatic, flexible, facts-and-circumstances approach to our allocation of resources and actions during this uncertain period, taking into account the advice and expertise of my fellow Commissioners and our staff, as well as the views of market participants. we continue to encourage engagement from market participants, including, in particular, investors,” Clayton concluded.

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