SEC Issues Updated Guidance on Business Continuity Planning for Registered Investment Companies

June 29, 2016

In a guidance update issued on June 28, 2016, the staff of the Division of Investment Management (the “Division”) of the Securities and Exchange Commission outlined certain issues that fund complexes should consider when formulating business continuity plans (“BCPs”) as they relate to critical service providers.

The Division stressed that Fund complexes increasingly rely on affiliates and third parties to perform critical functions, and thus need to understand the business continuity and disaster recovery protocols of such service providers. Additionally, fund complexes should determine how their own BCPs address the risk that a critical service provider could suffer a significant business disruption.

The Division believes fund complexes should consider the following when formulating BCPs:

  • Back-up Processes and Contingency Plans. Consider examining critical service providers’ backup processes and redundancies, the robustness of their contingency plans, including reliance on other critical service providers, and how these providers intend to maintain operations during a significant business disruption.
  • Monitoring Incidents and Communication Protocols. Consider how to best monitor whether a critical service provider has experienced a significant disruption, the potential impact on fund operations and investors, and the communication protocols that may be necessary to successfully navigate such events. Such protocols could include:
    • Formulating internal and external communication plans;
    • Maintaining updated and accessible contact information for essential communications; and
    • Providing timely progress reports and updates via websites or portals.
  • Understanding the Interrelationship of Critical Service Provider BCPs. Consider how critical service providers’ BCPs relate to each other to ensure that funds can continue or promptly resume operations during a business continuity event.
  • Contemplating Various Scenarios. Consider how a critical service provider disruptions could impact fund operations and investors and formulate plans to manage the response to potential disruptions under various scenarios.

Additionally, the Division believes fund boards generally should discuss with the fund’s adviser and other critical service providers the steps being taken to mitigate risks associated with business disruptions and the robustness of their business continuity planning.

Click here to access the Guidance Update.


Investment Companies, Mutual Funds