The 5.8 magnitude earthquake that shook large portions of the eastern seaboard on August 23rd should serve as a useful reminder to registered investment advisers and broker-dealers to review and update their business continuity plans.
While not explicitly stated in Rule 206(4)-7 of the Investment Advisers Act of 1940, SEC registered investment advisers are nevertheless required to maintain business continuity and succession plans. This is true because Rule 206(4)-7’s adopting release stated that the SEC believes “an adviser’s fiduciary obligation to its clients includes the obligation to take steps to protect the clients’ interests from being placed at risk as a result of the adviser’s inability to provide advisory services after, for example, a natural disaster or, in the case of some smaller firms, the death of the owner or key personnel.” Moreover, the SEC has explicitly stated that, at a minimum, it expects an adviser’s policies and procedures manual to contain a business continuity plan.
FINRA Rule 4370, places a similar requirement for its member firms to implement a written business continuity plan. To that end, registered investment advisers and broker-dealers should implement a written business continuity plan which addresses (at a minimum) the following areas:
- Data back-up and recovery (both hard copy and electronic);
- Mission critical systems;
- Financial and operational assessments;
- Alternate communications between customers and the member;
- Alternate communications between the member and its employer;
- Alternate physical location of the employees;
- Critical business constituent, bank and counter-party impact;
- Regulatory reporting;
- Communications with regulators; and
- Assuring customers will have prompt access to their funds/securities in the event the member is unable to continue business.
For more information, please contact Brent Cunningham, Associate Attorney at Jacko Law Group, PC at (619) 298-2880 or at email@example.com.