At the end of June, the Securities and Exchange Commission proposed a new rule requiring investment advisers to adopt and put in place written business continuity and transition plans designed to deal with a “significant disruption” in such entities’ operations. These plans would not be one-size-fits-all, but rather be risk-based depending on the IA’s operations. Under the SEC’s proposed rule, business continuity and transition plans would address the maintenance of “critical operations and systems, and the protection, backup and recovery of data, including client records;” back-up physical locations; communications with clients, employees, regulators and service providers; evaluation of critical third-party service providers; and a transition plan that contemplates the termination of the IA’s business “designed to safeguard, transfer and/or distribute client assets during transition.” According to the SEC, “[p]roper planning and preparation for possible distress and other significant disruptions in an adviser’s operations is essential so that, if an entity has to exit the market, it can do so in an orderly manner, with minimal or no impact on its clients.” Comments on the SEC’s proposal will be accepted through September 6. At the same time the SEC issued its proposed new rule for IAs, the SEC’s Division of Investment Management issued business continuity planning guidance for registered investment companies.
My View: On first blush, the Securities and Exchange Commission’s proposed rule requiring investment advisers to adopt business continuity and transition plans appears reasonably drafted without imposing overly prescriptive requirements. It establishes the elements of what the SEC perceives to be acceptable programs but permits specific measures to be tailored to reflect each firm’s actual business. The rule also requires an investment adviser to review the adequacy of its existing business continuity and transition plan no less than annually. This all seems quite reasonable.
