SEC Proposes Written Business Continuity and Transition Plan Requirement for Registered Investment Advisers

July 15, 2016

The Securities and Exchange Commission (the “SEC”) recently proposed a new rule1that would require registered investment advisers (“Advisers”) to adopt and implement written business continuity and transition plans which include policies and procedures concerning (i) business continuity following a significant business disruption2, and (ii) business transition3 in the event that the Adviser is unable to continue providing investment advisory services to clients. An Adviser may tailor its plan based on the specifics of its business operations, provided the plan addresses all the necessary components set forth in the proposed rule.

Under the proposed rule, an Adviser’s business continuity and transition plan must be reasonably designed to address operational and other risks related to a significant disruption in the Adviser’s operations, and include policies and procedures concerning the following specified components:

  1. maintenance of critical operations and systems, and the protection, backup, and recovery of data, including client records;
  2. pre-arranged alternative physical location(s) of the Adviser’s office(s) and/or employees;
  3. communications with clients, employees, service providers, and regulators;
  4. identification and assessment of third-party services critical to the Adviser’s operations; and
  5. plan of transition4 that accounts 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 continue providing investment advisory services.

Each Adviser would also be required to conduct an annual review of the adequacy and effectiveness of the implementation of its plan, and to maintain related specified records.

Comments on the proposed rule must be received by the SEC on or before September 6, 2016.


1 Full text of the proposed rule is available here:  The SEC staff has also issued a related IM Guidance Update on business continuity planning for registered investment companies, available here:

2 The Proposing Release describes business continuity situations generally to include natural disasters, acts of terrorism, cyber-attacks, equipment or system failures, or unexpected loss of a service provider, facilities, or key personnel.

3 The Proposing Release describes business transitions to generally include situations in which the Adviser exits the market and is no longer able to serve its clients, including when it merges with another adviser, sells its business or a portion thereof, or in unusual situations, enters bankruptcy.

4 The transition plan must include:

i. policies and procedures intended to safeguard, transfer and/or distribute client assets during transition;

ii. policies and procedures facilitating the prompt generation of any client-specific information necessary to transition each client account;

iii. information regarding the corporate governance structure of the Adviser;

iv. the identification of any material financial resources available to the Adviser; and

v. an assessment of the applicable law and contractual obligations governing the Adviser and its clients, including pooled investment vehicles, implicated by the Adviser’s transition.


If you have any questions regarding the matters covered in this memo, please contact any of the partners and counsel listed below or your primary attorney in Seward & Kissel’s Investment Management Group.