The Managed Funds Association and the Alternative Investment Management Association (collectively, the "Associations") submitted comments to the SEC on a proposed rule concerning business continuity and transition plans ("BCPs") for investment advisers. The Associations asserted that the proposed rule is unnecessary, since firms have business continuity plans in place already pursuant to Rule 206(4)-7 under the Investment Advisers Act.

The Associations emphasized that the proposed rule could be overly prescriptive, and that its "one-size-fits-all approach" could disrupt existing effective industry practices. Instead, the Associations urged, the SEC should continue the practice of issuing guidance, which affords flexibility to regulators and investment advisers as they develop new frameworks to accommodate changing market conditions and technologies.

In addition, the Associations argued that:

  • the mandatory requirements in the proposed rule would effect a reversal of the SEC's prior position on BCPs, as well as its longstanding practice of allowing variegated operations for funds and advisers;
  • a transition plan rule for hedge funds is not needed to protect investors;
  • existing regulations address systemic risk already, which makes a transition plan for hedge funds unnecessary and even unsuitable; and
  • the cost of implementing the proposed rule likely would exceed the benefits for managers and could be passed on to investors in the form of higher fees.

Alternatively, the Associations suggested that if the SEC does adopt the proposed rule, then the rule will require modifications, such as (i) reducing the scope of required succession-planning policies, (ii) eliminating the requirement that firms must disclose summaries of their business continuity and transition plans in their Form ADVs, and (iii) removing the obligation for a manager to alert clients or the SEC every time its BCP or transition plan is activated. The A

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