October 21, 2019

October 21, 2019

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New SEC Rule Proposal – Written Business Continuity and Transition Plans for Registered Advisers

Earlier this week, the SEC issued a Press Release announcing a Rule Proposal that would require SEC-registered investment advisers to adopt written business continuity and transition plans (BCP) as part of their compliance program.  The comment period on the Rule Proposal is expected to close in September.  Under the proposed rule, an adviser’s written BCP will be expected to address situations including continuity in the event of a significant business disruption as well as transition of business if the adviser is unable to continue to provide advisory services and, much like an adviser’s compliance program itself, the adequacy of the BCP and the effectiveness of its implementation will be required to be reviewed at least annually.  Although Chair White acknowledged that advisers “may not always be able to prevent significant disruptions to [their] operations,” the BCP will be expected to be tailored to the risks inherent in the adviser’s business and be designed to minimize material service disruptions.  Specifically, under the proposed rule, advisers will be expected to focus on:

  1. Maintenance of critical operations and system and protection of data;

  2. Alternative physical operational locations;

  3. Communications, including with regulators as well as clients and others;

  4. ID and assessment of critical third-party services;

  5. Plans of transition in the event of winding down or cessation of advisory services, including addressing: safeguarding and transfer of client assets; prompt generation of client-specific transition information; governance structure of the adviser; material financial resources available to the adviser; and assessing law and contractual obligations governing the adviser and client accounts.

While many advisers have long had BCPs, this Rule, if adopted, will make a failure to have an annually reviewed written BCP a violation of securities laws.

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About this Author

Richard Cutshall, Greenberg Traurig Law Firm, Chicago, Corporate, Finance and Real Estate Law Attorney

Richard M. Cutshall has experience representing clients in a variety of investment management, corporate, and general securities matters, including the representation of mutual funds and other funds registered under the Investment Company Act of 1940, fund independent directors, unregistered investment companies, federally registered and state registered investment advisers, broker-dealers, and an array of public and private companies. 

Rich represents clients in all aspects of investment company practice, including organizing and forming new...