SIFMA Asset Management Group ("SIFMA AMG") and the Investment Adviser Association ("IAA") made separate recommendations to the SEC about a proposed rule concerning business continuity and transition plans for investment advisers. Consistent with recent recommendations from MFA and the Alternative Investment Management Association ("AIMA"), SIFMA AMG and the IAA urged the SEC to issue guidance instead of adopting a new rule.
According to the SEC, the proposed rule is designed to address operational risks related to significant disruptions in investment advisers' operations. Like previous rules for business continuity plans that were mandated by FINRA, the CFTC and the NFA, this proposed rule would require plans for investment advisers to be risk-based, documented in written policies and procedures, and reviewed annually. The proposed rule also would amend existing books-and-records requirements in order to impose new recordkeeping obligations for these business continuity and transition plans.
SIFMA AMG stated that it supports efforts to mitigate the risks of business disruptions for investors, but requested that the SEC should (i) consider building on the "successful approach" of Advisers Act Rule 206(4)-7 by issuing guidance instead of adopting the proposed rule, and (ii) recognize that the proposed requirements for advisers are unnecessary, since the existing regulatory framework and current practices address the SEC's "transaction-related concerns."
In the event that the SEC deems the proposed rule to be necessary, SIFMA AMG recommended that it be revised to disinclude "fraudulent liability" for business continuity practices. According to SIFMA AMG, the changes would create an "unprecedented level of accountability" for functions carried out by third-party service providers.
SIFMA AMG Head and Managing Director Timothy Cameron emphasized:
In a separate letter, the IAA contended that the new anti-fraud rule is not needed by the SEC to achieve its aims and "could in fact become counterproductive." The IAA added that business continuity and transition planning are inherently more operational than the kinds of conduct that typically are governed by anti-fraud rules. It added that the amount of detail and "prescriptive language" in the proposal could, if adopted, cause smaller investment advisers to establish anti-fraud plans that were unsuitable to their business models.
Commentary
This proposed rule is consistent with two unfortunate trends: (i) regulators seem to be giving themselves the authority to impose criminal sanctions on a firm for undergoing a breakdown in business procedures (regulators have taken a similar approach to cybersecurity and trading technology), and (ii) regulators seem to be imposing standards on others that far exceed those that are imposed by the government on itself.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.