Companies, in particular banks, seeking a waiver that allows them to obtain exemptive relief despite an enforcement action may soon get fresh guidance from the Securities and Exchange Commission on how that increasingly contentious process will work in the future.

“Pursuant to [Chairman Mary Jo White’s] request we already have posted guidance about how we process Well-Known Seasoned Issuers waivers, but we also have plans to also post guidance about how we process Reg D and Reg A waivers,” Elizabeth Murphy, an associate director for the Securities and Exchange Commission's Division of Corporation Finance, said this weekend at the Practising Law Institute's annual SEC Speaks conference in Washington D.C.

In 2005, the SEC gave the nation's largest public companies the opportunity to register as “Well-Known Seasoned Issuers,” or WKSIs, and gain nearly instant access to capital markets without the delays of a traditional registration process. Shelf registration statements, which allow for greater flexibility for when and how securities are issued, can take effect automatically and immediately, without the need for SEC staff review. To be eligible for this expedited WKSI status, an issuer must be up-to-date with all other reporting requirements and have at least $700 million of worldwide public common equity float.

There is a catch. WKSI status may be revoked when an issuer violates federal securities laws or enters into a settlement of SEC charges. The SEC's Division of Corporation Finance will, however, allow waivers that allow companies to maintain their WKSI status even if they have had recent violations or have settled charges. A similar waiver process applies to companies that could otherwise lose their Regulation A and Regulation D exemptions for Rule 506 eligible private placements.

In the past, CorpFin routinely processed waiver requests and granted them by its delegated authority once staff determined that relevant standards had been met, she explained. Since March 2014, however, some SEC’s commissioners, notably Kara Stein, have called for a review of most of the waiver applications. Subsequently, four of the six WKSI waivers and 7 of the 10 Reg D and Reg A waivers were issued by a Commission order, rather than through CorpFin’s authority.

The issue of waivers, which has divided commissioners, was a hot topic at the conference. Stein referred to automatic disqualifications, or “bad actor bars,” as “tools that can reinforce compliance and be powerful deterrents.” “These bars are triggered because parties cannot be trusted with the more flexible regulatory privileges provided in certain parts of the securities laws,” she said.

“The argument that automatic disqualifications should not be considered a sanction or an enforcement tool is a red herring – a verbal sleight of hand that distracts from the real question of whether automatic disqualifications are being applied appropriately and effectively,” Stein added. “The argument that we should grant a waiver whenever the reason for automatic disqualification is ‘unrelated’ to the waiver defies common sense. If you manipulate LIBOR, enable offshore tax evasion, or launder drug money, should we wait for you to defraud a pension fund before barring you from raising money outside of strict Commission oversight?”

“I do not support returning to the time when Commission staff rubberstamped waivers for the largest, most well-connected firms,” Stein said. “A focus on establishing a transparent, consistent process is paramount.”

Commissioners Michael Piwowar and Daniel Gallagher have gone on record opposing automatic disqualifications if the offense in question is unrelated to a sough-after exemption.

Murphy had advice for companies navigating the waiver process. “Start discussions with staff as early as you can,” she said. “You don’t have to wait for the underlying enforcement matter to be completed. If you have questions, you can talk anonymously with the staff about issues that are related to the waivers.”

Companies should also refrain from seeking waivers they don’t need. “Some will seek a waiver from Reg A, even though they have never relied on the exemption and have no plans to do so,” Murphy said.

There was also a reminder for those who search the SEC’s website for information on denied waivers. Online information only reflects waiver requests that have been granted, others are given the opportunity to withdraw their request and to date all of them, without exception, have chosen to do so.

While Reg D waivers, in the past, were fully granted “and they all looked the same,” that has changed, Murphy said. “In recent months, the Commission has occasionally granted limited waivers [examples include Bank of America and Oppenheimer], meaning that the entity getting the waiver is subject to certain conditions or restrictions that are specified in the order.”

There was no indication as to when the new guidance will be made available.