By Ken Berman, Marc Ponchione, Gregory Larkin and Norma Freeland

Law360 (April 6, 2020, 5:59 PM EDT )

Ken Berman

Marc Ponchione

Gregory Larkin

Norma Freeland

On March 13, the U.S. Securities and Exchange Commission issued temporary exemptive relief and revised the original order on March 25, in the form of a 45-day extension from certain Form ADV and Form PF filing and reporting obligations under the Investment Advisers Act.

The relief applies to registered investment advisers and exempt reporting advisers — RIAs and ERAs, respectively. In both the original order and the press release associated with the original order, the SEC recognized that the coronavirus outbreak, or COVID-19, could lead to material disruptions that may limit investment advisers' "access to facilities, personnel, and third party service providers."

The SEC also noted that these disruptions could "delay or prevent funds and advisers operating in affected areas from meeting certain regulatory obligations due to restrictions on large gatherings, travel and access to facilities, the potential limited availability of personnel and similar disruptions."

The SEC stated in the amended order that it is extending the exemptions provided by the original order in light of its understanding of the circumstances of the COVID-19 outbreak. As such, the order is intended to "enable funds and advisers to meet [their] obligations and to continue their operations, while recognizing that there may be temporary disruptions outside of their control."

Simultaneously with both the original order and the amended order, the SEC also issued temporary exemptive relief, including modifications thereto, under the Investment Company Act and the Securities Exchange Act addressing various matters.

Applicable Reporting or Filing Obligations

For RIAs, the order applies to (1) filing an amendment to Form ADV under Rule 204-1 of the Advisers Act; (2) delivering Form ADV Part 2 or a summary of material changes to existing clients under Rule 204-3(b)(2) and (b)(4); and (3) filing Form PF if so required by Section 204(b) of and Rule 206(b)-1 under the Advisers Act.

For ERAs, the order applies to filing reports on Form ADV under Rule 204-4 of the Advisers Act.

Conditions for Exemptive Relief

The order provides an extension of up to 45 days to the filing and delivery obligations noted above with an original due date between March 13 and June 30 if the following conditions are met:

• The RIA or ERA is unable to meet the filing or delivery deadline due to circumstances related to current or potential effects of COVID-19.
  
  
• An RIA otherwise required to deliver Form ADV Part 2 (or a summary of material changes):
  
  
  • Promptly notifies the SEC via email at IARDLive@sec.gov that it will be relying on the order, and
    
    
  • Promptly discloses on its public website (or, if it does not have a public website, promptly notifies its clients and/or private fund investors) that it is relying on the order.
    
    
• An RIA otherwise required to file Form PF promptly notifies the SEC vial email at FormPF@sec.gov stating that it will be relying on the order.
  
  
• The RIA or ERA files Form ADV or Form PF or delivers Form ADV Part 2 — in each case, as applicable — as soon as practical, but no later than 45 days after the original due date.

Of note, the amended order (1) extended the applicability of the original order to filing and delivery requirements that are due on or before June 30,(the original order applied to filing and delivery obligations due on or before April 30); and (2) eliminated the requirement that an RIA provide a brief description of the reasons why it could not deliver Form ADV Part 2 or file Form PF on a timely basis and provide an estimated date for the delivery and/or filing.

Considerations for Advisers Who Wish to Rely on the Order

In determining whether an adviser should take advantage of the exemptive relief, the SEC reminds advisers to "evaluate their obligations, including their fiduciary duty, under the federal securities laws."

This may be intended as a subtle reminder that the SEC expects RIAs to have business continuity plans designed to address operational and other risks related to significant business disruptions in the adviser's operations which may be caused by natural disasters, acts of terrorism, cyberattacks, equipment or system failures, or the unexpected loss of a service provider, facilities or key personnel.

The SEC's Office of Compliance Inspections and Examinations noted in a March 23 statement that "reliance on [the order] will not be a risk factor utilized in determining whether OCIE commences an examination," and otherwise encourages "registrants to utilize available regulatory relief as needed."

OCIE also stated that it "may discuss with registrants the implementation and effectiveness of registrants' business continuity plans, particularly in the interests of protecting investors and the integrity of the markets." As such, RIAs should consider using this opportunity to review their business continuity plans and ensure and confirm that operations are working as anticipated by those plans.

Among other issues, as firm personnel may be working remotely, advisers should consider whether any reminders to their personnel about the adviser's cybersecurity and privacy policies are required, including reminders as to the proper use of personal devices and keeping confidentiality.

RIAs should assess the quality and continuity of services they are receiving from key service providers (such as fund administrators, custodians, prime brokers and others) and also consider reaching out to key service providers and vendors to assess the effectiveness of their business continuity plans.

After such considerations, RIAs may want to revisit (1) their business continuity plans to make any necessary updates; and (2) their policies and procedures to ensure proper oversight of service providers and vendors and proper due diligence of any service provider and vendor's operations and polices before engagement.

While the SEC eliminated the requirement that advisers provide a brief explanation of the delay, advisers should nevertheless anticipate, and prepare for, requests from clients and/or private fund investors to provide further detail on the source of the delays, how COVID-19 has affected the adviser's operations, and on the adviser's business continuity plans.

As COVID-19 disruptions continue, an adviser should consider reviewing its disclosures in Form ADV, disclosures to clients and private fund investors (including, if applicable, in private placement memoranda) concerning COVID-19-related issues, issues relating to potential business and operational disruptions as well as additional investment risks and make any updates as necessary.

While such disclosures may initially be drafted broadly enough to apply to any number of potential operational and business disruptions, advisers should continue to review and adapt disclosure as necessary.

Finally, advisers should note that the exemptive relief is intended to be self-executing and advisers should not wait for, or expect, approval from the SEC upon notification.

The order is limited to Form ADV and Form PF obligations as of the writing of this article and does not extend to other compliance obligations.

However, we note that the SEC and its staff is closely monitoring and assessing the impact of COVID-19 and has provided, and is expected to continue to provide, COVID-19-specific interpretive guidance, including with respect to the completion of an annual audit for private funds, or the delivery of the financial statements and issues related to temporary relocation of adviser personnel for Form ADV reporting purposes.

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Ken Berman and Marc Ponchione are partners, Gregory Larkin is counsel, and Norma Angelica Freeland is an associate at Debevoise & Plimpton LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

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