Amid the backdrop of a fierce debate among commissioners, the Securities and Exchange Commission’s Division of Corporation Finance has issued new guidance on how and when waivers will be granted for companies that otherwise face an automatic disqualification from certain registration exemptions when raising capital.

Companies that violate federal securities laws or enter into a settlement of SEC charges lose their Regulation A and Regulation D exemptions for Rule 506 and Rule 505 eligible private placements. CorpFin can issue a waiver from those disqualifications, at its discretion, provided that the violations are not related to the offerings. For more than a year, SEC commissioners have been divided over the use of these waivers. Commissioners Michael Piwowar and Daniel Gallagher oppose leveraging waivers as an enforcement tool; Commissioner Kara Stein is troubled by the relative ease companies can obtain one.

The new guidance, issued on March 13, details factors that will be used to evaluate a waiver request. CorpFin will consider who was responsible for the misconduct and what role the bad actors have, or had, with respect to the party seeking the waiver. For example, it will be a negative factor if the party seeking the waiver is the same as the one responsible for the misconduct or if an individual, such as an executive officer or director, committed the misconduct and continues to exert influence on operations.

CorpFin will also consider whether the misconduct reflects broadly on the entity as a whole. “If warning signs were disregarded, or the tone at the top of the party seeking the waiver condoned, encouraged or did not address the misconduct…or obstructed the regulatory or law enforcement investigation, then these factors would weigh against granting a waiver,” the guidance says. “If misconduct committed by one or more individuals resulted in the waiver applicant’s disqualification, and the applicant removes or terminates its association with those individuals, the Division would generally view such actions taken as favorable to the waiver request.” Also under consideration is whether the misconduct occurred over an extended period or whether it was an isolated instance. If the misconduct was an isolated instance, then this factor would weigh favorably in the waiver determination.

CorpFin will review any remedial actions that have been made, including when they began, and whether they are likely to mitigate the possibility of future violations. Also under consideration is whether the party seeking the waiver has taken steps to improve training and made improvements to its policies, procedures or practices. Lastly, CorpFin will consider the severity of the affect on the issuer or third parties, including investors and customers, if the waiver request is not granted. It will assess whether disqualification would be a disproportionate hardship. Applicants, in making their case, should submit information concerning how often they have used the relevant exemption in the past, or how they plan to use it in the future, and explain why a waiver is needed.