Business Continuity and Succession – SEC and Nebraska Proposed Rules

July 21, 2016

The Securities and Exchange Commission (SEC) has proposed a new business continuity and transition plan rule that would require investment advisers to develop business continuity and transition plans tailored to the specific needs of their investment advisory business. In its guidance on the new rule, the SEC noted that investment advisers increasingly rely on technology to carry out both vital and day to day functions. When those technological processes are not available, either due to severe weather, system failure, or other causes, investment advisers should have a plan in place to minimize any harm or disruption to their clients’ interests. An investment adviser should also consider what it would do if key personnel are lost or unavailable, or if the investment adviser’s physical office is temporarily or permanently unusable. Click here to read the SEC’s proposed rule in its entirety.

If not properly handled, such events can cause harm to both the clients’ interests and to the investment adviser’s reputation. The SEC noted that this risk of harm to clients — combined with the investment adviser’s fiduciary duty — requires investment advisers to create and implement robust business continuity and transition plans. Although many investment advisers already use business continuity plans as a matter of best practice, the SEC hopes the proposed rule will promote universal adoption among investment advisers, while also increasing their quality and implementation.

In April 2015, the North American Securities Administrators Associations (NASAA) adopted a model rule similar to the SEC’s proposed rule. NASAA’s “Model Rule on Business Continuity and Succession Planning” states that “every investment adviser shall establish, implement, and maintain written procedures relating to a Business Continuity and Succession Plan.” NASAA’s model rule states that an investment adviser’ business continuity plan should, at a minimum, provide for the following:

1. The protection, backup, and recovery of books and records

2. Alternate means of communication with customers, key personnel, employees, vendors, service providers, and regulators

3. Office relocation in the event of a loss of a principal place of business

4. Assignment of duties to qualified persons in the event of the death or unavailability of key personnel

5. Minimizing service disruptions and client harm resulting from a sudden significant business interruption

Click here to read NASAA’s Business Continuity and Succession Plan Model Rule.

In order for NASAA’s Business Continuity and Succession Plan Model Rule to become effective for state registered investment advisers, each state must individually adopt the rule. For instance, the Nebraska Department of Banking and Finance has proposed a business continuity and succession planning rule for investment advisers registered in Nebraska. Nebraska would require investment advisers to create and implement a written business continuity and succession plan that is tailored to the specific needs of the advisory firm. At a minimum, investment advisers registered in Nebraska would be required to address how investment advisory records will be backed up and protected, how the investment adviser will communicate with internal and external parties, what to do if the office needs to be relocated, and how to carry on if key investment advisory personnel are unavailable. Click here to read Nebraska’s proposed business continuity and succession planning rule in its entirety. A hearing on the Nebraska proposed rule will be held on August 10, 2016 at 9:30 am at the Department of Banking and Finance, located at 1526 K Street, Suite 300, Lincoln, Nebraska, 68508.

RIA Compliance Consultants encourages investment advisers to read the SEC’s proposed rule, Nebraska’s proposed rule, and NASAA’s model rule for business continuity and succession planning. Investment advisers should use these proposals and models as a tool to assess their own business continuity and succession plans they current have in place or as guides to develop their own business continuity and succession plans if plans are not already in place. RIA Compliance Consultants offers a template Disaster Recovery and Business Continuity plans and can help your investment adviser draft its own specific business continuity and succession plan.

Posted by Bryan Hill
Labels: Business Continuity Plan, Compliance Program, SEC