SEC Proposes Rule Requiring Advisers to Adopt Business Continuity Plans

Registered investment advisers ("RIAs") should be aware that the Securities and Exchange Commission ("SEC") has proposed a new rule that would require RIAs to adopt and implement written business continuity and transition plans. Currently, the SEC staff only expects RIAs to address business continuity in their written policies and procedures to the extent relevant. Therefore, RIAs should be reviewing their current policies and procedures to determine if they address the key components highlighted by the SEC. This proposed rule is a continuation of the SEC's efforts to ensure that investment advisers have plans in place to address operational and other risks related to various disruptions (e.g., natural disasters, cyber-attacks, technology failures, the departure of key personnel, and similar events, etc.) that could cause investor harm. The proposed rule would require an RIA's plan to be based upon the particular risks associated with the RIA's operations and address various components, such as: 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 RIA is winding down or is unable to continue providing advisory services. RIAs will need 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.

Finally, the proposed rule would also require RIAs to review the adequacy and effectiveness of their plans at least annually and to retain certain related records.

To read the proposed rule, please click on the link below:

https://www.sec.gov/rules/proposed/2016/ia-4439.pdf

To read the SEC Press Release, please click on the link below:

https://www.sec.gov/news/pressrelease/2016-133.html

If you have any questions regarding this Alert, please contact Yehuda Braunstein at ybraunstein@sglawyers.com.

Cheryl Spratt