On March 9, 2020, the Financial Industry Regulatory Authority (FINRA) updated its guidance for broker-dealers’ pandemic-related business continuity plans (BCPs) and issued regulatory guidance and relief from some of their obligations in response to the novel coronavirus (COVID-19) global pandemic.  FINRA made clear that Regulatory Notice 20-08 imposes no new rules or obligations on members and applies only to members’ obligations under FINRA’s rules and regulations and not those of other securities regulators.  Acknowledging the evolving nature of the crisis, FINRA also invited members to consult with the organization to address additional compliance challenges as they arise, noting that additional regulatory guidance and relief may be provided at a later date.  Finally, FINRA indicated that Regulatory Notice 20-08 will remain effective until a subsequent notice of cessation is published. Continue Reading FINRA Issues Regulatory Notice 20-08 Providing Guidance and Regulatory Relief to Members Addressing COVID-19 Pandemic

The World Health Organization has now declared COVID-19 a pandemic, and as more businesses begin to face the impacts of quarantines and travel restrictions, they may find themselves managing unexpected legal risks.  Among those are risks related to communications with customers by sales and marketing functions.

Those businesses hardest hit in the initial stages of the crisis — e.g., cruise lines, airlines and hotels —  quickly face pressures that raise the risks of private litigation and government enforcement in connection with sales and marketing efforts.  For example, what assurances should sales representatives give in response to inquiries about the chances of contracting the virus in connection with the use of a product or service?  What information should be provided about safety measures being taken?  Do sales commission and incentive programs exacerbate the risks of non-compliant responses, and should they be suspended? Continue Reading COVID-19 and the Compliance Risks Related to Sales and Marketing Practices

The UK’s Competition and Markets Authority (CMA) is strengthening its approach to merger control as it prepares for its new status as a global enforcer with expanded jurisdiction.

Following the UK’s departure from the EU on 31 January 2020, the UK entered a transition period due to end on 31 December 2020.  EU competition law continues to apply in the UK until the transition period ends (and to mergers notified to the European Commission before the end of that period), meaning that the European Commission continues to have exclusive jurisdiction over transactions with an EU dimension, including those impacting UK markets.

Please click here to read the full alert memorandum.

Partially overturning a decision of the High Court, the Court of Appeal held on 18 February 2020 that a company is able to withhold privileged material when responding to a notice from the Financial Reporting Council (the “FRC”) requiring the production of documents in connection with an FRC investigation[1]. The decision has broad implications for the ambit of privilege during regulatory investigations.

The FRC (the UK regulator for auditors, accountants and actuaries) is currently conducting an investigation into Grant Thornton and one of its employees, in relation to its audit of Sports Direct International Plc (“Sports Direct”) for the year ending April 2016. In April 2017, the FRC (pursuant to its powers under the Statutory Auditors and Third Country Auditors Regulations 2016 (“SATCAR”)) notified Sports Direct that it was required to disclose emails and their attachments which: (i) relate to the audit, (ii) are held by one or more of five identified custodians, (iii) are dated within certain specified date ranges, and (iv) are responsive to one or more of 27 different specified search terms. Sports Direct provided approximately 2,000 documents to the FRC in response, but withheld 40 documents on the grounds of privilege (these documents were emails and attachments sent to or by Sports Direct’s legal advisers, either internal or external). The FRC applied to Court to force disclosure of the withheld documents. Continue Reading UK Court of Appeal Finds That Privilege Affords Protection Against Regulators’ Requests for Documents Unless Overriden by Statute

On January 27, 2020, the U.S. Securities and Exchange Commission (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”) issued examination observations related to cybersecurity and operational resiliency practices (“Examination Observations”). The observations highlight a set of best practices by market participants in the following areas:  (1) governance and risk management, (2) access rights and controls, (3) data loss prevention, (4) mobile security, (5) incident response and resiliency, (6) vendor management and (7) training and awareness.  Cybersecurity has been a key priority for OCIE since 2012.  Since then, it has published eight cybersecurity-related risk alerts, including an April 2019 alert addressing mobile security. OCIE has perennially included cybersecurity practices as part of its examination priorities (“Examination Priorities”) and listed all but mobile security as “particular focus areas” in the “information security” priority for 2020.  Continue Reading OCIE Cybersecurity and Resiliency Observations and Best Practices

Last week the Securities and Exchange Commission Chair Clayton and Commissioners Lee and Peirce each issued statements on climate-related disclosures in SEC filings. The statements were prompted by the concurrent SEC’s proposal to amend the MD&A rules and evidence some debate within the SEC on this topic, which has attracted considerable recent attention among investors, companies and regulators. The outcome for companies is generally the status quo, as the SEC chose not to include specific requirements on climate change or other environmental, social and governance (ESG) disclosure in the amendments to MD&A it proposed yesterday.

To read the full alert memorandum, please click here.

Yesterday the Securities and Exchange Commission took two significant actions relating to the MD&A disclosures in annual and quarterly reports of public companies.

First, it proposed amendments to MD&A requirements that would, if adopted, make significant and long-overdue improvements to a central disclosure requirement of the U.S. securities laws. Second, it issued guidance on the presentation of performance metrics in MD&A, which will take effect immediately upon publication in the Federal Register.

For our memo on the proposed MD&A amendments, click here.

For our memo on the performance metrics guidance, click here.

Insider trading law has remained a subject of significant debate and attention, including with a recent Second Circuit decision addressing the use of 18 U.S.C. §§ 1343 (wire fraud) and 1348 (securities fraud) in insider trading cases[1] and a new insider trading bill that passed the U.S. House of Representatives in December by an overwhelming majority.  Yesterday, a blue ribbon task force headed by Preet Bharara, the former U.S. Attorney for the Southern District of New York, published a report studying the history and current state of insider trading law and proposing reforms that would bring greater clarity and certainty to the law. Continue Reading Task Force Led By Preet Bharara and Cleary Gottlieb’s Joon H. Kim Issues Report Recommending Reforms to Insider Trading Law

The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2020”.

SEC Disclosure and Reporting Developments

Recently, the US Securities and Exchange Commission continued to move forward with a number of disclosure effectiveness and simplification initiatives, the details of which are available in our Disclosure Simplification Tracker.

Although many of these changes are administrative in nature, collectively they represent an ongoing shift toward principles-based disclosure. In the coming year, we expect that the practical limits of principles-based disclosure will be tested as the SEC moves to implement its August 2019 proposal for the simplification of the narrative description of the business and risk factor items, and attempts to tackle simplification of the MD&A section, which they have included on their Fall 2019 regulatory short-term agenda.

While we expect these changes will give wider latitude for companies to customize their disclosures, the impact may be less than expected because they will do little to address the underlying legal judgments about litigation and reputational risk management that have shaped the form of current disclosure practices.

To read the full post, please click here.

For a PDF of the full memorandum, please click here.

The following post was originally included as part of our recently published memorandum “Selected Issues for Boards of Directors in 2020”.

Enforcement of anti-bribery, sanctions and money laundering laws remains a top priority for US authorities. In 2019, the US Department of Justice and civil regulators issued new or updated policies aimed at increasing incentives for self-reporting by companies. Different agencies also provided additional guidance about compliance programs, including the role of officers and directors in supervising compliance programs.

To read the full post, please click here.

For a PDF of the full memorandum, please click here.