SEC proposes to require investment advisors to draw up business continuity plans

Chris Hamblin

4 July 2016

The idea is to make the firms tackle operational and other risks related to significant disruptions in their operations in order to minimise harm to clients and investors.

Such plans are expected to help advisors continue to perform advisory services in the event of business disruptions – whether temporary or permanent – such as natural disasters, cyber-attacks, technological failures and the departure of key personnel.

The SEC is proposing to require every advisor to plan to deal with the risks associated with its operations and to address the following.

Maintenance of systems.
Protection of data.
Pre-arranged alternative physical locations.
Communication plans.
Reviews of third-party service providers.
Plans of transition in the event of the advisor winding down or ceasing to be able to continue providing advisory services.

The regulator wants to require advisors to review the adequacy and effectiveness of their plans at least annually and to retain certain related records.

The SEC will publish the proposal on its website and in the Federal Register, with a comment period of 60 days thereafter.

To supplement this, the regulator has already issued related guidelines to govern business continuity planning for registered investment companies and especially evaluations for the operational capacity of key fund service providers.