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SEC Wants to Mandate Written Transition Plans for RIAs

The Securities and Exchange Commission (SEC) has proposed a new rule that would require registered investment advisers to adopt and implement written business continuity and transition plans.

The SEC says that the proposed rule is designed to ensure that investment advisers have plans in place to address operational and other risks related to a significant disruption in the adviser’s operations in order to minimize client and investor harm. 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 a natural disaster, cyber-attack, technology failures, the departure of key personnel, and similar events.

The SEC's effort to require RIAs to have business continuity plans has been in the works since the fall of 2014.

Components

The proposed rule would require an adviser’s plan to be based upon the particular risks associated with the adviser’s operations and include policies and procedures addressing:


  • 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 adviser is winding down or is unable to continue providing advisory services.


Under the SEC proposal, the plans would be required to address these elements that are critical to minimizing and preparing for material service disruptions, but would permit advisers to tailor the details of their plans based upon the complexity of their business operations and the risks attendant to their particular business models and activities.

Annual Review

The proposed rule and rule amendments also would require advisers to review the adequacy and effectiveness of their plans at least annually and to retain certain related records.

In addition to the proposed rule, 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.

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.

The proposed rule is available here.

To submit a comment, please use the SEC’s Internet submission form or send an e-mail to [email protected].

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