SEC Proposes Rule Requiring Investment Advisers to have Business Continuity and Transition Plans

June 29, 2016

On June 28, 2016, the SEC released a rule proposal that would require registered investment advisers to adopt and implement written business continuity and transition plans detailing the adviser’s policies and procedures in case of significant disruptions to, or discontinuation of, the adviser’s operations, with the purpose of minimizing client and investor harm.

On June 28, 2016, the SEC released a rule proposal that would require registered investment advisers to adopt and implement written business continuity and transition plans detailing the adviser’s policies and procedures in case of significant disruptions to, or discontinuation of, the adviser’s operations, with the purpose of minimizing client and investor harm.Under the proposed rule for investment advisers, all business continuity and transition plans would include policies and procedures that address the following specified components: (i) maintenance of critical operations and systems and the protection, backup, and recovery of data; (ii) pre-arranged alternative physical locations; (iii) communications with clients, employees, service providers, and regulators; (iv) identification and assessment of third-party services critical to the operation of the adviser; and (v) plan of transition that accounts for the possible winding down of the adviser’s business or the transition of the adviser’s business to others in the event the adviser is unable to continue providing advisory services.

In particular, an adviser’s business continuity and transition plan must include: (i) policies and procedures intended to safeguard, transfer and/or distribute client assets during transition; (ii) policies and procedures facilitating the prompt generation of any client-specific information necessary to transition each client account; (iii) information regarding the corporate governance structure of the adviser; (iv) the identification of any material financial resources available to the adviser; and (v) an assessment of the applicable law and contractual obligations governing the adviser and its clients, including pooled investment vehicles, implicated by the adviser’s transition.

The proposed rule would allow advisers to tailor their plans based on the specifics of their business operations and the particular risks associated with such operations, provided their plans address all the necessary components. Advisers would also be required to conduct at minimum annual reviews of the adequacy and effectiveness of their plans, and to retain certain related records.

In addition, the SEC issued related guidance for investment companies. See companion blog post titled “SEC Issues Guidance on Business Continuity Planning for Registered Investment Companies”.


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Investment Advisers, Investment Companies