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From Securities Regulation Daily, January 14, 2019

NASAA reminds securities industry that state regulators are open during federal government shutdown

By Mark S. Nelson, J.D.

SEC’s CorpFin updates shutdown FAQs.

The North American Securities Administrators Association (NASAA) said that state securities regulators remain open during the federal government shutdown, which has impacted the ability of the SEC to provide its full range of services. The SEC implemented its shutdown plan in December after the Trump Administration and Congress were unable to agree on appropriations legislation for FY 2019.

State regulators open. Michael Pieciak, NASAA President and Commissioner of the Vermont Department of Financial Regulation, noted in a statement how federal and state securities regulations intersect. "We are available to field investor complaints or answer questions regarding small business capital formation, as we have been for the past 100 years." He further noted that state securities regulators oversee the bulk of investment adviser firms and all investment adviser representatives.

Moreover, the statement emphasized the common themes between the SEC’s and state regulators’ missions: "State and federal securities regulators share the same mission to protect investors and the integrity of our financial markets. State securities regulators are on the beat carrying out this mission as we have done for more than a century and we stand ready to provide whatever assistance we can to investors. Our important work continues, and we are also happy to assist the SEC while it operates with limited staffing as a result of the partial federal government shutdown."

Revised CorpFin shutdown guidance. According to the SEC’s website, the agency continues to work within the confines of its operations plan with emphasis on the "market integrity and investor protection" components of its tripartite mission of investor protection, facilitating capital formation, and maintaining fair, orderly and efficient markets. Previously, the SEC said it had an "extremely limited number of staff members available to respond to emergency situations" regarding investor protection and market integrity, including law enforcement, although key systems, such as EDGAR and the Tips, Complaints, and Referrals system, would remain operational.

The SEC’s Division of Corporation Finance issued a set of FAQs on how it would handle various filings and requests during the shutdown. An earlier set of 14 FAQs has been periodically updated during the first three weeks of the shutdown, and that guidance currently includes a total of 9 FAQs. The Division of Investment Management plans to follow most of the CorpFin guidance. However, both CorpFin and the Investment Management Division said staff would not be available to respond to questions on most pending matters, although limited staff could help with fee calculation issues.

Moreover, in the case of CorpFin, for example, emergency requests for relief under Rule 3-13 of Regulation S-X would have to involve "some reasonable likelihood that the protection of property would be compromised, in some significant degree, by delay in the performance of the function in question" for the SEC to act while there is a lapse in appropriations. Multiple FAQs address the situations where a registration statement might omit the delaying amendment and the need to potentially amend a registration if the SEC’s operational status changes.

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