Executive Order on Regulatory Relief Issued to Support Economic Recovery

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Introduction

On May 19, President Trump issued an Executive Order (EO) authorizing federal agencies to provide regulatory relief in support of the economic recovery from the COVID-19 outbreak. The EO builds on other Administration initiatives in several sectors that addressed the pandemic, either by seeking to mitigate the spread of the disease or containing its effects on the economy. The EO is very broad and leaves agencies with substantial discretion on how it should be implemented, subject to oversight by the Office of Management and Budget and the White House and consistency with applicable law, including the Administrative Procedure Act (APA).

Some key provisions are likely to be of general interest to the business community:

• Section 3 directs agencies to use "to the fullest extent possible and consistent with applicable law" available emergency authorities "to support the economic response to the COVID-19 outbreak." It encourages agencies "to promote economic recovery through non-regulatory actions."
• Section 4 encourages greater consideration of deregulation in support of economic recovery. It directs agencies to take actions "consistent with applicable law" to "identify regulatory standards that may inhibit economic recovery and shall consider taking appropriate action …. including by issuing proposed rules as necessary, to temporarily or permanently rescind, modify, waive, or exempt persons or entities from those requirements, and to consider exercising appropriate temporary enforcement discretion or appropriate temporary extensions of time as provided for in enforceable agreements with respect to those requirements, for the purpose of promoting job creation and economic growth."
• Section 5 addresses compliance assistance for regulated entities. Section 5(a) requires agency heads (with the exception of the Department of Justice) to do so by accelerating procedures for regulated persons or entities to receive a pre-enforcement ruling on whether proposed conduct in response to COVID-19 is consistent with the law. Section 5(b) prompts agencies to consider whether to formulate, and make public to the regulated community, policies as to how each agency plans to "decline enforcement against persons and entities that have attempted in reasonable good faith to comply with applicable statutory and regulatory standards, including those persons and entities acting in conformity with a pre-enforcement ruling."
• Section 6 contains a series of nine considerations for agency heads under the broad rubric of "Fairness in Administrative Enforcement and Adjudication." Among other things, it requires the Government to bear the burden of proving an alleged violation of law, that administrative enforcement be "prompt and fair," and that "[a]ll rules of evidence and procedure should be public, clear, and effective." This section also requires that "[l]iability should be imposed only for violations of statutes or duly issued regulations, after notice and an opportunity to respond," echoing an October 2019 Executive Order providing that "it is the policy of the executive branch, to the extent consistent with applicable law, to require that agencies treat guidance documents as non-binding both in law and in practice, except as incorporated into a contract."
• Section 7 requires agencies to review any temporary regulatory or enforcement measures they adopted in response to COVID-19 and "determine which, if any, would promote economic recovery if made permanent."

Section 9(c) of the EO has a national defense carveout: "Notwithstanding any other provision in this order, nothing in this order shall apply to any action that pertains to foreign or military affairs, or to a national security or homeland security function of the United States (other than procurement actions and actions involving the import or export of non-defense articles and services)."

As reflected in the discussion below of several sectors particularly affected by COVID-19, the EO is a continuation of Trump Administration efforts to ease regulatory burdens on the private sector in light of the pandemic. It encourages agencies to examine the actions they took in response to COVID-19, and identify opportunities to promote economic recovery by making permanent some of the recent changes that responded to the health crisis. In this way, the EO could serve as a catalyst for further deregulation in these industries.

Similarly, there may be some real impact from Section 6's focus on considerations of "fairness" in administrative enforcement and adjudication. Although some of the provisions merely appear to restate black-letter law on matters such as burden of proof and transparency, they may give regulated entities more procedural or substantive arguments to contest enforcement actions. It also has not always been the case that all agencies' rules of evidence have been "clear" and "effective"; there are many agencies whose enforcement actions have not been so "prompt"; and Administrative Law Judges have not uniformly held agencies to their burden of proof. Nor have many agencies always been transparent about when they will decline to bring enforcement actions based on "good faith" attempts to comply with regulations, as Section 5(b) requires. It bears watching how individual agencies will operationalize the EO's direction for each of those procedural requirements.

The sectors below are examples of the COVID-19 regulatory relief already on the books or underway.

Healthcare

Since the announcement of the public health emergency (PHE), the agencies of the U.S. Department of the Health and Human Services (HHS) have taken a multitude of steps to provide regulatory flexibilities to many types of healthcare providers and suppliers. These steps have allowed those providers and suppliers to expand their capacity, and to target workforce and clinical services caring for the surge of patients with COVID-19, while also providing some reassurance that certain good-faith actions by providers to address the unique circumstances of the crisis would not draw enforcement scrutiny for fraud and abuse. Notably, the Centers for Medicare and Medicaid Services (CMS) instituted a long list of temporary adjustments ranging from expanding Medicare coverage for and Medicare beneficiary access to telehealth services, granting hospitals means to expand capacity to sites of service outside the their licensed footprint, and respite from numerous time-consuming documentary-type requirements.

CMS also removed historic barriers to the ability of certain healthcare professionals (HCPs) to practice to the full potential of their training and licensure. For example, CMS waived the requirement that every Medicare beneficiary in the hospital must be under the care of a physician—versus another qualified HCP such as a nurse practitioner—as well as the requirement that certified nurse anesthetists be supervised by a physician.

CMS also took the bold step of providing blanket COVID-19 related waivers of certain Stark Law requirements that could create unnecessary legal obstacles to good faith efforts to respond to PHE related problems. The HHS Office of Inspector General (OIG) offered parallel protection by announcing it would exercise enforcement discretion in application of the federal Anti-Kickback Statute to arrangements covered by the Stark Law waivers, absent fraud and abuse in such arrangements. The HHS Office of Civil Rights also enabled broader use of telecommunications to deliver health care services by waiving a number of requirements related to the privacy and security requirements of the Health Insurance Portability and Accountability Act (HIPAA).  

Taken together, these developments have created an environment that enabled the country's healthcare delivery system to respond more effectively to address emergency conditions. The EO seeks to capitalize on those changes, and to direct healthcare agencies to explore whether these emergency measures should outlive the pandemic that spawned them. As a result, providers and patients now have an opportunity to weigh in, and to identify those changes that could have long-term advantages for the future of health care delivery.

Food & Drug Administration

The Food and Drug Administration (FDA) has used Emergency Use Authorizations (EUAs) and enforcement discretion to allow the distribution of some unapproved medical products to treat COVID-19 patients or to test for COVID-19. These products include personal protective equipment (PPE), ventilators, diagnostics, and therapies to treat patients.  When the HHS Secretary declares the end of the public health emergency, those EUAs will expire. Similarly, FDA has indicated that it will rescind enforcement discretion when the emergency ends.  FDA has also issued a guidance permitting greater flexibility in the ways in which sponsors of clinical trials may protect patient safety. Here, too, the agency has stated that this guidance will only remain in effect during the COVID-19 emergency.

The EO could cause FDA to reconsider some procedures that it requires in clinical trials and how it evaluates some products after the emergency is over.

Typically, to be marketed, many pharmaceuticals or biologics must receive FDA approval of a New Drug Application, Abbreviated New Drug Application, or Biologics License Application. For many medical devices, FDA must grant Premarket Approval or clear a 510(k) pre-market submission. Under these procedures, FDA evaluates whether a product is safe or effective, either by examining clinical or other data regarding a product or by comparing the product to a legally marketed product.

By contrast, EUAs permit the marketing of unapproved products during a public health emergency if FDA finds that, among other things, it is reasonable to believe that the known and potential benefits of a product outweigh its potential risks. EUAs do not require FDA to find that products are safe and effective (though FDA often imposes conditions in EUAs that aim to protect the public). The Public Readiness and Emergency Preparedness Act (PREP Act) provides immunity for claims of loss against companies or individuals that distribute or administer products pursuant to an EUA. During the COVID-19 emergency, FDA has granted EUAs for products such as diagnostics, ventilators, PPE, and pharmaceuticals.

Similarly, FDA has announced that—during the emergency—it will exercise discretion not to bring enforcement action with respect to some unapproved products, such as hand sanitizers, certain drugs manufactured by compounding pharmacies and outsourcers, some forms of PPE, and some diagnostics. As is typical with such announcements, FDA's guidance outlines the conditions or criteria that will protect manufacturers and others from enforcement, even if they have complied with certain otherwise applicable regulatory requirements. Unlike an EUA, however, FDA's guidances on enforcement discretion does not confer immunity under the PREP Act.

In the area of clinical trials, FDA has responded to the COVID-19 crisis by permitting sponsors to conduct some aspects of trials remotely. In FDA Guidance on Conduct of Clinical Trials of Medical Products during the COVID-19 Public Health Emergency: Guidance for Industry, Investigators, and Institutional Review Boards, the agency recognizes that travel restrictions make impossible certain in-person interactions with trial participants. For example, prior to the COVID-19 pandemic, in many trials, a clinical trial site was required to administer a therapy and examine a participant in person. By contrast, during the emergency, the agency is now permitting virtual examinations of participants and the administration of drugs at alternative locations, such as home nursing facilities. 

The extensive use of EUAs and enforcement discretion and FDA's clinical trials guidance have not altered the existing statutory or regulatory requirements for approving medical product applications and submissions or for protecting clinical trial participants. However, FDA's experience with those tools during the emergency may inform how FDA operates in the future. For example, in recent years, the agency has been more willing to rely on post-market observational data when evaluating drug applications. The agency may conclude that the data that it has obtained from the post-market monitoring of safety and effectiveness of some products it has authorized under an EUA or permitted under enforcement discretion are important for deciding whether to grant a permanent approval or clearance. Similarly, in clinical trials, FDA may decide that a permanent use of tools such as virtual examinations or alternatives sites for administering drugs may protect participants while making trials more efficient.

FDA's increased flexibility in the evaluation of some medical products and in the oversight of clinical trials could give patients quicker access to safe and effective new treatments.

Environmental

At the beginning of this Administration, President Trump set out an ambitious environmental deregulatory agenda that has not slowed down, even in the face of the COVID-19 pandemic. Indeed, EPA was already in the process of a wide range of deregulatory actions when President Trump declared the national emergency on March 13.

Despite the crisis, EPA has made significant progress on a number of major deregulatory initiatives in the weeks following the stay-at-home orders. To keep the ball rolling, EPA has denied a number of pandemic-related requests to postpone hearings and extend comment periods. The EO provides further encouragement for EPA's ongoing efforts.

For example, in the weeks leading up to the declaration, EPA issued a proposal revising regulations governing the disposal of coal combustion residuals in landfills and surface impoundments and rolled back refrigerant management regulations for substitute refrigerants, such as hydrofluorocarbons (HFCs). More recently, due to COVID-19, EPA issued an interim final rule providing relief to power plant operators from certain Clean Air Act emissions reporting requirements during the pandemic. EPA has also provided supply chain flexibilities for registrants of pesticide products, reopened the public comment period on proposed interim decisions for neonicotinoid pesticides, delayed various reporting deadlines, and granted retailers additional time to sell non-compliant residential wood heaters.

On the enforcement front, EPA has issued a series of temporary policies emphasizing that it will exercise discretion in pursuing certain violations associated with the pandemic. For example, in March, EPA issued a "temporary" policy on COVID-19 Implications for EPA's Enforcement and Compliance Assurance Program, which allows the agency to exercise enforcement discretion if companies cannot comply with certain monitoring, testing, sampling, training and reporting regulatory obligations due to the crisis. This Guidance has proved controversial, with at least two lawsuits challenging its validity and some critics calling it "an open license to pollute." In April, EPA issued interim guidance announcing that it would be willing to consider reducing or pausing site field work at EPA-led contaminated sites on a case-by-case basis due to COVID-19. In addition, EPA has given hazardous waste generators greater flexibility regarding signatures on hazardous waste manifests under RCRA, and issued a No Action Assurance letter establishing enforcement discretion to not pursue certain manufacturers' violations of reporting obligations under the Toxic Substances Control Act (TSCA) Fees Rule. In conjunction with the No Action Assurance, EPA announced that it would officially amend the TSCA Fees Rule to exempt manufacturers that import a chemical substance in an article, produce the chemical substance as a byproduct, or produce or import the chemical substance as an impurity. It remains to be seen which, if any, temporary policies could be made permanent pursuant to EO Section 7, which requires agencies to review temporary measures adopted in response to the pandemic and determine those that would promote economic recovery if made permanent.

While the EO seems to encourage EPA to continue down this path, disruption and delays due to the pandemic may inevitably create increased risk for Administration's environmental regulatory initiatives. The longer it takes for EPA to finalize its rules, the greater the chance those rules could be pushed into the Congressional Review Act (CRA) "lookback" period. To the extent that the agency rushes the rulemaking process―by providing limited time for public participation or by failing to adequately respond to comments―these rules could also be vulnerable to challenges in court. For a detailed analysis of how disruption caused by COVID-19 could affect the remaining environmental agenda (including a list of more than 35 rules that are in various stages of proposal and finalization), see our recent Advisory: Trump's Environmental Regulatory and Deregulatory Agenda at Risk Due to COVID-19.

Trade

To date, the Trump Administration has taken limited but important steps to ease the burden on importing parties in light of COVID-19 crisis. In particular, President Trump signed an Executive Order on April 18 authorizing U.S. Customs and Border Protection (CBP) to allow importers who can show significant financial hardship as a result of COVID-19 to defer duty payments by 90 days. Although the deferrals do not apply to antidumping and countervailing (AD/CVD), Section 201 (safeguard), Section 232 (national security), or China Section 301 duties, delaying other duty payments can afford importing parties additional liquidity during the crisis.

In addition, the office of the United States Trade Representative (USTR) granted a series of tariff exclusions for personal protective equipment (PPE) and other goods. It also opened a specific tariff exclusion process for products covered by the 301 tariffs that might be needed to respond to the COVID–19 outbreak.

Although the EO does not contain any specific provisions related to international trade or imports, some of its general language will apply to administrative actions in those sectors. For example, Section 6, Fairness in Administrative Enforcement and Adjudication, reminds administrative and investigative agencies, such as CBP, the Department of Commerce, and others regulating imports (such as the US Fish and Wildlife Service) of their obligation to conduct their proceedings and investigations fairly and transparently. Perhaps even more important, Section 6(1) of the EO may prove quite helpful, for example, in import proceedings where the US Government might otherwise proceed with a summary accusation of non-compliance that in some cases does not provide adequate detail to give the importer a meaningful opportunity to reply: "The Government should bear the burden of proving an alleged violation of law; the subject of enforcement should not bear the burden of proving compliance."

Banking

The EO is broadly consistent with prior Executive Orders from the current Administration on regulatory relief in the financial services sector, as well as a series of 2017 Treasury Department reports and other guidance on deregulation, agency interpretations, and the rulemaking process from federal banking agencies and the Securities and Exchange Commission (SEC). At the same time, it may have the effect of reinvigorating the agencies' efforts to finalize existing rule amendment proposals on financial regulatory relief.

In the context of the current crisis, the federal banking agencies and the SEC have issued a number of temporary rules and interpretive regulatory relief to address the economic impact of the COVID-19 crisis. Examples include: deferrals of deadlines for SEC reporting and implementation dates for recently-adopted requirements; forbearance and moratoria on foreclosures and evictions with certain federally-backed loans; temporary relief on accounting for loans as to which payment extensions and other modifications have been provided to avoid their treatment as "troubled debt restructurings" (TDRs); relaxation of lending limits, capital, and liquidity rules, including community bank leverage ratios, supplementary leverage ratios (SLRs), capital and liquidity buffers and total loss absorbing capacity (TLAC); adoption of several temporary Federal Reserve emergency lending programs and the Federal Reserve's reduction of its discount lending window rate to 0%. For a summary as of May 29 of financial regulatory relief in the COVID-19 crisis, see our recent Advisory.

Most of these actions were specifically sparked by the current financial situation, particularly by the need to provide leeway for banks as lenders and service providers to address the impact of the crisis on borrowers and other customers. Once the current crisis resolves, and those imperatives dissipate, these emergency provisions will not be good candidates for permanence.

There are a few emergency and interim rules, however, whose breadth and significance would be consistent with the direction of the EO:

• The Federal Reserve Board's recently adopted interim amendments to Regulation D reserve requirements that eliminated the limit of six withdrawals and transfers on money market deposit accounts (MMDAs) and other savings accounts as a factor distinguishing them from transaction accounts (demand deposit accounts and NOW accounts). This amendment was based upon the Federal Reserve's elimination of reserve requirements for transaction accounts and its movement away from using bank reserve requirements as a monetary and economic policy tool.
• The FDIC's recently issued temporary interpretive relief allowing brokerage account sweep deposits to average up to 25% of securities account balances (rather than 10% as previously required) without counting as "brokered deposits." This change is included separately as part of broader proposed FDIC rulemaking on its "brokered deposits" rule. Final action on that pending rulemaking would provide more certainty and some relief to banks (and their deposit customers) regarding certain categories of deposits, and a process for fast determination on the status of deposit arrangements under the "primary purpose" test for deposits intermediated through third party agents.
• Allowing bank branch opening, relocation, and closing with after-the-fact notice rather than requiring prior application and regulatory approval.
• Recently issued interagency guidance on small-dollar loans, which guidance simplifies the required process by which banks lend to consumers and small business.
• The SEC's temporary relief on certain Regulation A and Regulation Crowdfunding requirements.
• The SEC's temporary rule providing registered business development companies (BDCs) with relief from certain senior debt and co-investment limits.

In addition, there are several other long-pending rulemakings that have not yet been completed. In some cases, these stalled as agencies turned to more immediate regulatory issues associated with the COVID-19 crisis. Moving forward to finish these rulemakings would be consistent with the Executive Order. These pending rulemakings include:

• The third round of amendments to the interagency rules that, among other changes. implement the Volcker Rule amendments for private "covered funds" to create new exemptions for "credit funds" and "venture capital funds" and simplify compliance by foreign funds and banking entities;
• SEC amendments to the definition of "accredited investor" and "qualified institutional buyer" in SEC Regulation D and Rule 144A; and

SEC amendments to Regulation A and crowd-funding rules to streamline and simplify access to capital by start-ups, emerging stage, and small businesses, and to allow a broader swath of the investing public to invest in these companies.

© Arnold & Porter Kaye Scholer LLP 2020 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.