In recent weeks, the coronavirus—which has infected over 1.3 million people worldwide at the time of this writing—has radically changed how companies conduct business. Directives to work remotely and “shelter in place” are now the norm, causing businesses to deal with scattering workforces, strained supply chains, and diminished demand. In response, the U.S. Securities and Exchange Commission (“SEC”) is relaxing its filing requirements and offering guidance on how public companies should respond.
On March 4, 2020, the SEC issued an order that eased certain filing requirements in light of COVID-19. The SEC granted a 45-day extension for public companies to file certain disclosure reports due between March 1, 2020 and April 30, 2020. To qualify for an extension, the SEC said that companies need to submit materials to the SEC explaining why they cannot meet the compliance deadline and the impact COVID-19 has had on their business. On March 25, the SEC extended its order to cover filings due through July 1, 2020.
Since then, the SEC has offered filers more relief, generally in the form of guidance and statements. On March 27, 2020, the SEC eased compliance requirements for corporations even further, allowing companies unable to fulfill the notarization requirements to access the SEC’s filing system to submit forms without notarization as long as they explain how COVID-19 affected them and submit a notarized copy within 90 days of accessing EDGAR. According to the SEC, this temporary rule will be in place through July 1, 2020.
Crowdfunding companies, too, are getting a break from filing reports that would otherwise have been due between March 26, 2020 and May 31, 2020. The SEC has extended their filing deadlines by 45-days under the condition that the company informs investors that it is relying on the temporary final rule and explain why it could not meet the filing requirement earlier.
Municipal advisors are granted relief as well. They have an additional 45-days to file annual updates that would have otherwise been due between March 26, 2020 and June 30, 2020. Among other conditions, the municipal advisor must be unable to meet the filing deadline for its annual update due to circumstances related to the coronavirus and must provide a brief description of why it could not meet the filing deadline.
In addition to loosening filing requirements, the SEC’s Division of Corporate Finance offered detailed guidance on how companies should assess and communicate to investors the risks associated with COVID-19. Although the Division urged timely reporting, it recognized that “it may be difficult to assess or predict with precision the broad effects of COVID-19 on industries or individual companies.” The Division encouraged companies to “consider the need for COVID-19-related disclosures within the context of the federal securities laws and our principles-based disclosure system . . . . It is only with this type of disclosure that all investors can make informed decisions.” With these principles in mind, the Division set forth questions companies should be asking as they assess the impact coronavirus may have on their business. Companies should consider topics ranging from their financial conditions to human capital resources and productivity.
Most recently, on April 2, 2020, Chairman Jay Clayton issued a statement explaining the steps the SEC has taken in response to COVID-19 and reassuring investors that the SEC “continue[s] to allocate our resources in the best interests of investors and our capital markets, with investor protection and market integrity front of mind.” Chairman Clayton further announced that the deadline for Regulation BI and Form CRS will remain June 30, 2020. Those mandates require SEC-registered investment advisors and SEC-registered broker-dealers to provide retail investors with a brief customer or client relationship summary, as well as notify investors of the services they are receiving and how they will be charged for those services.
Other changes to filing deadlines and processes have been and will no doubt continue to be announced.
The SEC’s recent initiatives may only be the tip of the iceberg. With the number of coronavirus cases continuing to swell, the SEC is monitoring the situation and may take additional steps, including providing further filing extensions. These extensions, along with any further guidance, afford companies much needed flexibility as they are dealing with the short- and long-term effects of the current crisis. And they make good sense, as it is hard to close the books on year-end financials during this life-disruption and extreme social distancing. But such actions come with a cost to investors. At a time when market gyrations are monitored almost as closely as new COVID-19 diagnoses, investors should not and cannot be kept in the dark for long. Companies must continue to be transparent about their financial condition, business prospects, and the risks and opportunities the current crisis presents.
For access to the SEC’s orders, visit https://www.sec.gov/rules/other.shtml.