Physical and financial health are both top of mind in a crisis situation like the pandemic the world is currently facing. While flattening the curve and limiting the spread of COVID-19 is top priority, the economy has also been tremendously impacted because of global financial instability and uncertainty.
Investment companies play a valuable role in this type of situation because they serve as intermediaries for many people seeking to invest and access markets. For middle-class families and people of modest means, an investment company may be their only avenue for accessing the markets and investing their funds.
Because of the gatekeeper role many investment companies play, the SEC Division of Investment Management is closely monitoring firms to ensure they are meeting their required investor communication obligations under federal securities laws.
What Guidelines Govern Investor Communications?
Investment companies and fund issuers have an obligation under section 10(a)(3) of the Securities Act of 1933; they are required to make regular updates to the information in their prospectuses, including the required underlying certified financial statements.
For investment companies with a December 31 fiscal year-end, this obligation must be met by May 1, 2020 to continue to sell shares to new investors and to sell additional shares to existing investors.
My Team’s Been Impacted by COVID-19 and We’re Short-Staffed. What Should I Do?
While getting these communications to investors is of critical importance to the SEC, there’s also an understanding that the stressors of the pandemic may impact investment companies’ abilities to conduct business as usual. Many companies are facing larger workloads and fewer staff hours because of familial obligations, illnesses, or financial considerations that require them to lay off or furlough workers.
Because the SEC recognizes extenuating circumstances may affect firms’ abilities to meet the required deadlines, an option has been made available for a conditional extension of the traditional timeframe.
To qualify for the conditional extension, the investment company must:
- Show it is unable to prepare or transmit the report due to COVID-19
- Inform the Commission via email at IM-EmergencyRelief@sec.gov
- Transmit the report to shareholders as soon as practicable, but no later than 45 days after the original due date
- File the report with the SEC within 10 days of its transmission to shareholders
If an extension is granted, the firm must also include a statement on the applicable registered fund’s public website briefly stating its reliance on this order.
Between communicating with clients to allay their fears and concerns, educating them on their investment options during the COVID-19 pandemic and gauging their appetite for risk during this uncertain situation, investment companies and financial advisors have a full workload to manage.
While regulatory filings and financial updates are necessary to ensure timely and relevant information is available to investors, they shouldn’t take focus away from providing clients with support and reassurance. If your firm needs an extra set of hands to manage some of your compliance efforts, Red Oak Compliance’s consulting services are available to help you stay compliant and keep moving forward even during difficult times like the ones we’re facing now.
Contact Red Oak to discuss how we can work with your team during this time, and check our blog frequently for additional guidance on handling compliance and supporting clients during COVID-19 and beyond.
Red Oak is the advertising review software of choice in the financial services industry, with clients having over $19 trillion in assets under management. Partners of Red Oak benefit from quick implementation timelines, agile technology that responds to your needs and is 100% Books and Records compliant, all resulting in 35% faster approvals, and 70% fewer touches. Are you ready to minimize risk, reduce costs, and improve efficiency? Contact the Red Oak team to learn how.
About Red Oak Compliance Solutions
Red Oak Compliance Solutions is the global advertising review software of choice in the financial services industry. It is a comprehensive suite of SEC 17A-4 compliant features that are 100% books and records compliant and provides clients with 35% faster approvals and 70% fewer touches or better. We also offer Smart Review(SM), which solves for the storage and maintenance of disclosures, helping firms reduce risk, decrease review times, and increase the speed of distribution of marketing materials. Smart Registration(SM) automates the licensing and registration management process to help reduce regulatory risk and time spent on manual processes. Overall, Red Oak allows firms to minimize risk, reduce costs, and increase compliance review process effectiveness and efficiencies.