SEC proposes rule for continuity plans

The Securities and Exchange Commission proposed a new rule that would require registered investment advisers with the SEC to adopt and implement written business continuity and transition plans, according to a statement it issued this week. 

The proposed rule is designed to ensure that in the event of a significant disruption of operations for investment advisers, they will have plans in place to address operational and other related risks and be able to minimize the impact on clients and investors.

The 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 natural disasters, cyber-attacks, technology failures, the departure of key personnel and similar events, according to the statement. 

“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 Mary Jo White, SEC chair.

The proposed rule would require an adviser's plan to be based upon the particular risks associated with the its 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 transition plans in the event the adviser is winding down or is unable to continue providing advisory services.  

The plans would be required to address 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 would also require advisers to review the adequacy and effectiveness of their plans at least annually and to retain certain related records. On top of the proposed rule, the 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, according to the statement. 

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.