SEC Proposes to Require Business Continuity Plan

Miller & Martin PLLC Alerts | June 30, 2016


by Scott McGinness

On June 28, 2016, the Securities and Exchange Commission ("SEC") issued a proposed rule (Rule 206(4)-4, with proposed amendments to Rule 204-2) which would require SEC-registered investment advisers to adopt and implement written business continuity and transition plans, also requiring that such plans be reviewed annually.

Citing the need for advisers to take steps to address and mitigate risks of business interruptions, the SEC has indicated that robust plans must be developed. These plans at the minimum should address:

1. Maintenance of critical operations and systems and the protection, backup and recovery of data, including client records.

2. Pre-arranged alternate physical locations in which to conduct the adviser's operations.

3. Communications with clients, employees, service providers and regulators.

4. Identification and assessment of third-party services critical to the adviser's operations.

5. Transition plans that account for the possible winding down of the adviser's business or the transition of the adviser's business to others if the adviser is unable to serve its clients.

The proposed amendment to Rule 204-2 would require advisers to maintain copies of all written business continuity and transition plans that are or have been in effect at any time during the five years prior to the rule's compliance date, as well as records documenting the adviser's annual reviews of its plans.

Should you have any further questions in this area, please contact Scott McGinness or any other member of our Securities or Investment Management Practice Groups.

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