On March 24, 2020, Chairman Clayton released a statement sharing his perspective on the SEC's ongoing efforts to navigate the COVID-19 pandemic. He noted that the efforts of the SEC and other financial regulators are focused on two related issues: (a) the health and safety crisis and the changes and sacrifices that all Americans are having to make in response, and (b) the recognition that the continued operation of our markets is an essential component of our national response to, and recovery from, COVID-19. Chairman Clayton stressed the interrelationship between these issues. Private sector industries (such as health care, pharmaceutical, transportation, manufacturing and telecommunications) are critical to combatting COVID-19, and these industries rely on the provision of credit from the banks and capital markets to make and receive the necessary payments to continue to fulfil their respective duties. This reliance on the capital markets in combatting COVID-19 extends to the public sector as well; many state and local governments, who play pivotal roles in the provision of health care, transportation, and public services, including supplying health care professionals, depend on continued access to financing through the banking system and the municipal finance markets.

Chairman Clayton went on to acknowledge the impacts that COVID-19 has had on certain "non-essential" sectors such as air transportation, restaurants and lodging. He noted that the administration's efforts to provide funds to workers and businesses in these sectors to bridge any funding gaps, and doing so while keeping as many workers connected to their employers as is practicable, will enhance U.S. efforts to fight and recover from COVID-19. Chairman Clayton asserted that markets and policies should support a tailored, multi-faceted, time-limited approach that allows certain essential sectors to operate full-throttle and other sectors to stand down. In conclusion, he reiterated that preserving the flows of credit and capital in the U.S. economy to both businesses and individuals will help the U.S. better fight COVID-19 and speed and strengthen the recovery therefrom.

On April 3, 2020, the SEC released further statements on the regulatory priorities of the SEC and the importance of maintaining high-quality financial reporting, respectively, each in light of COVID-19. With respect to regulatory priorities, Commissioner Allison Herren Lee highlighted two considerations that she believes should inform the regulatory approach of the SEC in the current climate. First, she asserted that the SEC should extend current and recently closed comment periods to ensure that the public has an adequate opportunity to provide comments to the SEC's proposed regulatory actions. Second, she noted that the SEC should proceed with great caution in considering whether to take any non-critical regulatory action, and what ramifications any such action would have for the public, investors, markets, and the economy. She also stated that regulatory action in the near term unrelated to the exigencies created by COVID-19 would seem to rarely be warranted.

In the second statement, SEC Chief Accountant Sagar Teotia stressed to reporting companies the importance of continuing to provide investors and other stakeholders with high-quality financial information. Teotia reiterated that the SEC's Office of the Chief Accountant (OCA) remains committed to assisting market participants, and is available for consultation with respect to any questions that market participants may encounter as a result of COVID-19. Teotia addressed several areas of the OCA's work in light of the COVID-19 pandemic, including the following:

  • Accounting: The OCA remains actively engaged with the Financial Accounting Standards Board to address the impact of COVID-19. Teotia acknowledged that the impact of COVID-19 may require significant judgments and estimates with respect to certain accounting areas (fair value and impairment, leases, restructurings, and going concern, to name a few), and that such judgments can be challenging for reporting companies to make in times of continued uncertainty. In this context, he stressed the importance of including required disclosures on the nature of judgments and estimates in these and other areas.
  • Auditing: The OCA remains actively engaged with the Public Company Accounting Oversight Board (PCAOB) to address emerging issues related to COVID-19. For instance, the OCA supports the PCAOB's approach in providing audit firms conditional relief from inspections, suspending international travel with respect to inspections and in providing timely updates on the status of their operations. The OCA remains focused on auditor independence, stressing that this is a shared responsibility between audit committees, management and auditors, and that OCA is available for consultation in this respect as needed.
  • International Engagement: The OCA remains engaged with the International Accounting Standards Board and other international securities regulators on the impact of COVID-19. The OCA participates in efforts to reform the international audit-related standard-setting system through its participation in The Monitoring Group, a global organization composed of regulators and others dedicated to serving the public interest in areas related to international audit standard setting and audit quality.

For details on how to initiate a dialogue with the OCA, visit https://www.sec.gov/page/communicating-oca.

The SEC has reassured market participants that while its efforts are centered on the health and safety of its employees and all Americans, it is also focused on maintaining the continuity of operations. This includes monitoring market functions and system risks, providing prompt, targeted regulatory relief and guidance to issuers, investment advisers and other registrants impacted by COVID-19 and maintaining enforcement and investor protection efforts.

Against this backdrop, a majority of the SEC's staff have transitioned to remote work, but have remained fully operational throughout the transition. The SEC encourages market participants to continue to engage with them during this time, and has noted that they will continue to provide operational updates, as necessary. In order to facilitate continued engagement, the SEC has expanded its ongoing outreach efforts with and monitoring of various market participants. Key areas that the SEC will continue to monitor include the functioning and resiliency of securities markets, the activities and operations of large financial firms, the asset management industry, corporate filings and disclosures, and the impact of COVID-19 on securities markets generally. The SEC will also continue to engage and coordinate with other members of the U.S. and global financial regulatory community.

In the enforcement space, the SEC's Division of Enforcement and the Office of Compliance Inspections and Examinations has confirmed that it also remains fully operational, and continues to actively monitor for fraud, illicit schemes and other misconduct affecting U.S. investors relating to COVID-19.

The SEC has created and is continually updating a page detailing these and other facets of its response to COVID-19, which can be found here.

Originally published 13 May, 2020

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