SEC’s Lee urges comment-period extensions amid Covid-19

Apr 08, 2020
Commissioner also calls for caution on non-pandemic-related regulatory actions

The SEC should extend comment periods on pending initiatives and be wary of taking actions that are not related to the Covid-19 pandemic, according to commission member Allison Herren Lee.

In a statement issued last Friday, Lee praised the work of the commission and agency staff in responding to the pandemic and argued that regulatory efforts in the near term should focus primarily on the most urgent issues facing the markets and the public as a result of the outbreak.

Specifically, she urged the SEC to extend current and recently closed comment periods ‘to ensure that the public has an adequate opportunity to provide full and complete comments on the commission’s proposed regulatory actions.’

Recently closed comment periods include proposed rules or rule amendments on the disclosure of payments by resource extraction companies, the definition of accredited investors and accountant qualifications. Comment periods that remain open include a proposed rule regarding the provision of management’s discussion and analysis, selected financial data and supplementary financial information.

Lee urged the commission to extend all comment periods by at least 60 days, starting with those that closed in mid-March when the pandemic crisis was starting to impact US companies. ‘With respect to those comment periods that have not yet closed, it is important to take action now and not wait until the deadlines loom close or pass,’ she said. ‘This will ensure that the public can plan around the disruption of professional routines, diversion of resources to crisis management and added childcare and other caretaking responsibilities.’

The SEC should also ‘state with certainty’ how much additional time the public will have to file comments, Lee argued. In a notice on how it is responding to the pandemic, the agency notes that certain of its proposed actions have comment periods that expired in March, and that challenges associated with Covid-19 may delay the completion and submission of comment letters.

It explains that the SEC historically has considered comments submitted after a comment period closes but before a final rule or order is adopted. Initially, it stated that it would not take final action before April 24 on items with comment periods closing last month to give commenters additional time if needed.

The agency later updated the statement to include a multi-agency Volcker Rule covered-funds proposal, for which the comment period had closed on April 1, and said it would not take final action on the listed rule proposals before May 1.

Lee welcomed the statement but said it would have been of greater use if made earlier and with greater clarity.

‘The current statement on comment periods provides a date for earliest agency action on the affected rule proposals,’ she noted. ‘The public, however, has no way of knowing how much in advance of that date they must plan to submit comments. By contrast, the multi-agency statement on the Volcker covered-funds comment period stated unambiguously that the agencies will consider comments submitted before May 1, 2020. We should provide similar clarity, retroactively and going forward, in our actions and statements regarding the SEC’s comment periods.’

In addition, Lee said the agency should ‘proceed with great caution in considering whether to take regulatory action outside of that called for by the current dire and pressing public health crisis and its ramifications for the public, investors, markets and the economy.’

The SEC has already taken several steps intended to ease firms’ compliance burdens during the outbreak, such as offering reporting relief for certain public company filing obligations and issuing guidance on companies holding virtual AGMs. The risks and challenges posed by the pandemic continue to evolve and it is vital that the commission continue to devote its resources to the most pressing issues faced by investors, market participants and the capital markets more broadly, Lee said.

‘The commission should carefully analyze each action it takes in light of the altered economic and social landscape,’ she added. ‘Relevant considerations in that analysis include whether an action is directly responsive to Covid-19; whether an action represents an appropriate use of agency resources at a time when we are routinely called upon to take emergency actions; whether an action will unduly tax the already strained resources of investors, market participants or the public; whether we can adequately assess the economic effect of an action in light of rapidly evolving economic conditions; and whether an action is otherwise critical to advancing the agency’s mission.’

A collection of almost 50 organizations that are members of Americans for Financial Reform (AFR) recently called on US financial regulators including the SEC to stop work on new regulations other than those relevant to the Covid-19 outbreak during the worst of the pandemic. They urged agencies to place a moratorium on any pending, upcoming or new rulemaking that is not directly responsive to the pandemic ‘until at least 30 days after the national emergency has been lifted.’

An SEC spokesperson last week declined to comment on the AFR letter.

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