The US Securities and Exchange Commission yesterday proposed a new rule focused on reducing risks to an advisors business that may harm investors.

The SEC has proposed a new rule requiring RIAs to implement written business continuity and transition plans, in a move designed to address operational and other risks that may harm investors.

“While an advisor 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 SEC chair Mary Jo White.

“This is the latest action in the Commission’s efforts to modernize and enhance regulatory safeguards for the asset management industry, which includes rules previously proposed that would modernize the information reported to the Commission and investors, enhance fund liquidity management, and strengthen the regulation of funds’ use of derivatives.”

Business continuity and transition plans would help advisors preserve the continuity of advisory services in the event of a disruption, such as a natural disaster, cyber attack, technology failure, the departure of key personnel, and other similar events, the SEC said.

An advisor’s plan would have to be based on the risks associated with their operations, and include policies and procedures addressing the following: 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 advisor is winding down or is unable to continue providing advisory services. 

They would also be required to review their plans at least annually and retain certain related records.

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.