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With the spread of the Coronavirus comes the specter of disrupted markets, volatile trading activity, and regulatory and governance implications extending far beyond the recent market corrections attributable to the epidemic. Both the SEC and the CFTC have issued statements on the Coronavirus, and of particular importance for SEC- and CFTC-regulated entities, investors, and other market participants is how the uncertainty surrounding the Coronavirus will impact federal regulatory oversight and enforcement approaches. For its part, the SEC has indicated that regulated entities may need to make specific risk-related disclosures about the Coronavirus in their public filings, including proactively updating their filings as new information develops.
- The effect of the Coronavirus on business revenues and earnings, the effect of quarantines on supply chains and business plans, and arrangements for business continuity, including with respect to key third-party vendors, must be considered. Companies should be prepared to address these issues with regulators or self-regulatory organizations (“SROs”), as appropriate, including in connection with regular examinations or audits.
- To the extent disruptions create risks to operations, continuity of operations, revenue reductions, or other similar issues, management should consult with counsel regarding disclosure obligations and the timing of any required disclosures.
- Management should consider how to address already issued guidance on earnings and whether and when to update that guidance.
- Market participants should have risk management plans in place to ensure that they remain able to not only transact in the relevant securities, commodities, and derivatives markets in the event of a Coronavirus outbreak or mandated quarantine, but also properly and timely report those transactions to the appropriate regulator, to ensure the continued functioning of the markets and compliance with reporting and recordkeeping obligations.
- Market participants should evaluate whether and how to shift trading or brokerage operations from a centralized facility to a remote workplace while maintaining compliance with the SEC’s or CFTC’s various reporting, recordkeeping, oversight, and other risk management obligations, in the event that a Coronavirus outbreak requires extensive office closures or incapacitates a significant portion of a company’s workforce.
- Companies should ensure a regular supply of up-to-date medical supplies (e.g., alcohol-based hand sanitizer), and maintain sanitized facilities and should encourage telecommuting, minimizing unneeded inter-jurisdictional travel.
- Companies should evaluate the sufficiency of their current insurance coverage and whether any updates or upgrades may be necessary to cover events associated with the Coronavirus outbreak or similar future issues.
- Businesses should recognize their obligations to plan for continuity and to address identified risks in the current crisis, but also keep in mind that the Coronavirus is not a unique event, or even the first one in this realm; we already have seen epidemics or fears of epidemics related to SARS, MERS, Ebola, and the Swine Flu, for example. The Coronavirus is only the latest in this series. Consequently, businesses also should consider longer-term plans to introduce flexibility and advance planning to address likely future events that would affect supply chains, operating hours, or arrangements and availability or quarantine of staff, and reduce travel and meeting time to minimize the possibility of an in-office outbreak.