SEC Proposes Rule Requiring Investment Advisers to Adopt Business Continuity and Transition Plans
Reflects Commission’s Latest Action to Enhance Regulatory Safeguards in the Asset Management Industry
Washington D.C., June 28, 2016 —The Securities and Exchange Commission today proposed a new rule that would require registered investment advisers to adopt and implement written business continuity and transition plans. The proposed rule is designed to ensure that investment advisers have plans in place to address operational and other risks related to a significant disruption in the adviser’s operations in order to minimize client and investor harm.
“While an adviser may not always be able to prevent significant disruptions to its operations, advance planning and preparation can help mitigate the effects of such disruptions and in some cases, minimize the likelihood of their occurrence, which is an objective of this rule,” said SEC Chair Mary Jo White. “This is the latest action in the Commission’s efforts to modernize and enhance regulatory safeguards for the asset management industry, which includes rules previously proposed that would modernize the information reported to the Commission and investors, enhance fund liquidity management, and strengthen the regulation of funds’ use of derivatives.”
Business continuity and transition plans would assist advisers in preserving the continuity of advisory services in the event of business disruptions – whether temporary or permanent – such as a natural disaster, cyber-attack, technology failures, the departure of key personnel, and similar events.
The proposed rule would require an adviser’s plan to be based upon the particular risks associated with the adviser’s operations and include policies and procedures addressing the following specified components: maintenance of systems and protection of data; pre-arranged alternative physical locations; communication plans; review of third-party service providers; and plan of transition in the event the adviser is winding down or is unable to continue providing advisory services. The plans would be required to address these elements that are critical to minimizing and preparing for material service disruptions, but would permit advisers to tailor the detail of their plans based upon the complexity of their business operations and the risks attendant to their particular business models and activities.
The proposed rule and rule amendments also would require advisers to review the adequacy and effectiveness of their plans at least annually and to retain certain related records.
In addition to the proposed rule, SEC staff issued related guidance addressing business continuity planning for registered investment companies, including the oversight of the operational capabilities of key fund service providers.
The proposal will be published on the SEC’s website and in the Federal Register. The comment period will be 60 days after publication in the Federal Register.