Business Continuity Plan for Investment Managers

July 1, 2016

On June 28, 2016, the SEC issued proposed rule 206(4)-4 under the Advisers Act, which would require SEC-registered advisers to adopt and implement written business continuity and transition plans.

In conjunction with the proposing release, the SEC’s Division of Investment Management issued a guidance update offering the staff’s views on business continuity planning for registered investment companies under current existing requirements (IM Guidance Update No. 2016-04). The guidance update provides the staff’s observations and viewpoints on what it believes fund complexes should be undertaking to ensure their ability to continue operations during a business continuity event. Citing events such as Super Storm Sandy, and last summer’s pricing glitch at a large fund administrator, the staff is of the viewpoint that fund complexes should consider:

  • Examining critical service providers’ backup processes and redundancies, the robustness of the provider’s contingency plans, and how service providers intend to maintain operations during significant business disruption;
  • How to best monitor whether a critical service provider has experienced a significant disruption that could impair the service provider’s ability to provide uninterrupted services, the potential impacts such events may have on fund operations and investors, and the communication protocols and steps that may be necessary for the fund complex to successfully navigate such events (e.g., internal communications with the fund complex and with the board, and external communications with investors and regulators);
  • How the business continuity plans of a fund’s critical service providers relate to each other to better ensure that funds can continue operations and/or promptly resume operations during a significant business disruption; and
  • How a critical service provider disruption could impact fund operations and investors, and generally have a plan for managing the response to potential disruptions under various scenarios.

The staff would expect that the fund board take an active role in understanding how the fund adviser and critical service providers are seeking to mitigate the risks associated with business disruptions.

For more information, or if you have any questions, please contact Nick Prokos at (908) 239-9777.