The timing of the Coronavirus is coming at the time most private funds are working on audited financial statements.
Form ADV and Form PF
The first move was giving some extra time to file your Form ADV. It requires notifying the SEC and posting information on your website. Similar extensions are available for filing Form PF.
Custody
The SEC updated Question II.1 of the Custody Rule FAQ about inadvertently receiving client funds or securities. Given that many firms are unable to access mail and deliveries at their offices, The SEC has revised the guidance to set the date when the firm is considered to have received such securities on the date that they actually are able to access mail or deliveries at their office locations. The guidance requires investment advisers to return inadvertently received client funds and securities. Now the FAQ modifies that the “three business day” clock begins to run when you have access to office mail and deliveries. This relief is only available when the investment adviser’s personnel are unable to access mail or deliveries as a result of the investment adviser’s business continuity plan relating to COVID-19.
Form ADV – Office Locations
With many firms operating under business continuity and working from home, I’ve heard some concerns about office locations. If people are working from home on a longer basis does that become an office location that needs to be reported on Form ADV?
The SEC stepped up and answered the question. ” As long as the employees are temporarily teleworking as part of the firm’s business continuity plan due to such circumstances, staff would not recommend enforcement action if the firm does not update either Item 1.F of Part 1A or Section 1.F of Schedule D in order to list the temporary teleworking addresses.”
Audited Financial Statements
There is an older FAQ on delivery of audited financial statements under the custody rule for pooled investment vehicles. What happens if you’re not able to get your audited financial statements out within the 120 days mandated by the custody rule?
A: The Division would not recommend enforcement action for a violation of rule 206(4)-2 against an adviser that is relying on rule 206(4)-2(b)(4) and that reasonably believed that the pool’s audited financial statements would be distributed within the 120-day deadline, but failed to have them distributed in time under certain unforeseeable circumstances. (Question VI.g Modified March 5, 2010.)
I would put the Covid-19 into the category of unforeseeable circumstances. On the other hand, private fund documents typically contain a contractual obligation to deliver financial statements in a stated period of time.
Stay Healthy
I hope all the readers of Compliance Building are staying healthy. These are extraordinary times. Use common sense.
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