RIA Compliance Blog
As the partial federal government shutdown, which began at midnight on December 22, 2018, now approaches its fifth week, we write to update our readers on the shutdown’s specific impact on the SEC and securities regulatory activities. While we have previously discussed many of these points with our clients who currently have matters pending before the SEC, below is more general information regarding the SEC’s most significant functions.
The SEC was able to operate fully and conduct regular business for a limited number of days following the commencement of the general federal shutdown, but was forced to effectively close its doors on December 27, 2018. Since then, the agency has been operating at a very minimal level with a skeleton crew of staffers able to respond to only emergency situations. As described on the SEC’s home page, the remaining staff is available to respond only to “emergency situations involving market integrity and investor protection, including law enforcement.” The vast majority of the SEC’s employees have been furloughed and are not reporting to work at this time. That said, we note that a number of familiar online filing platforms, such as EDGAR, IARD, and CRD, all remain fully operable.
The SEC has developed a business continuity plan of its own and has made this plan available for public review on its website. As described in its shutdown plan, the following points are of relevance:
- The SEC’s online EDGAR corporate filings system is operated by an outside contractor and will remain fully functional so long as funding for the contractor remains available. Accordingly, public company filings (such as 10-Ks and 10-Qs), private placement exemption notices (Form Ds) and beneficial ownership reports (such as 13-Ds and 13-Gs), for example, can still be made, and applicable deadlines must still be respected.
- The Commission’s IARD system is also operated pursuant to a contract and will likewise continue to accept filings as long as funding for that contract stays in place. Therefore, an adviser’s requirement to file its annual update (prior to March 31st) and other-than annual amendments to its Form ADV remains in place.
- The CRD system will also remain fully functional and continue to accept filings.
- However, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) will be unable to approve applications for registration by investment advisers. As a result, new or pending applications to become registered as an investment adviser will not be processed. Note that this only impacts applications for registration with the SEC—applications by advisers to register with a state are unaffected.
- The Commission’s Enforcement Division will have only a limited number of staff on duty to attempt to respond to certain critical matters such as allegations of fraud. The SEC’s tips and complaint portal will continue to at least accept submissions.
- The following activities will be fully curtailed: litigation with very few exceptions; commencing and conducting investigative work (except as necessary for the protection of property); work to distribute funds to harmed investors; and non-emergency examinations and inspections. This list obviously includes routine OCIE advisory compliance exams.
Parker MacIntyre provides legal and compliance services to investment advisers, broker-dealers, registered representatives, hedge funds, and issuers of securities, among others. Our regulatory practice group assists financial service providers with complex issues that arise in the course of their business, including compliance with federal and state laws and rules. Please visit our website for more information.