United States: SEC Proposes Rule Requiring Investment Advisers To Adopt Business Continuity And Transition Plans

On June 28, 2016, the SEC published a release (the "Release") proposing new Rule 206(4)-4 under the Advisers Act (the "Proposed Rule"). If adopted, the Proposed Rule would require every SEC-registered investment adviser (an "Adviser") to adopt and implement a written business continuity and transition plan reasonably designed to address operational risks related to a significant disruption in the Adviser's business.

  • The business continuity portion of the required plan must be based upon the risks associated with an Adviser's operations, and would be required to consist of policies and procedures reasonably designed to minimize material service disruptions after a significant business disruption.
  • The transition portion of the required plan also must be based upon the risks associated with a Adviser's operations, and would be required to consist of policies and procedures reasonably designed to minimize material service disruptions if the Adviser's business is wound down or transitioned to others.

The Proposed Rule also would require an Adviser to review, at least annually, the adequacy of its business continuity and transition plan and the effectiveness of its implementation. Finally, the Release also proposes changes to Adviser record-keeping requirements that correspond to the requirements of the Proposed Rule.

The Proposed Rule is described in detail below. Comments on the Release must be filed no later than September 6, 2016.

On the same date that the Release was published, the SEC's Division of Investment Management published a Guidance Update titled, Business Continuity Planning for Registered Investment Companies (available here). The Guidance Update is the subject of a separate Ropes & Gray Alert (available here).

Business Continuity Planning.1 In 2003, in the adopting release for Rule 206(4)-7 under the Advisers Act (the "Compliance Program Rule"), the SEC stated that Advisers should adopt business continuity plans ("BCPs"). The Release states that, in 2003, the SEC did not "identify critical components of a BCP or discuss specific issues or topics that advisers should consider in developing such plans." Based on the SEC examiners' subsequent reviews of Advisers' responses to weather-related events and other observations of the examination staff concerning the operation of BCPs, as well the increasing operational complexity of many Advisers' operations, the SEC now believes that BCPs must expressly address the issues and topics set forth in the Proposed Rule.

The Proposed Rule provides that a BCP must be based upon the risks associated with an Adviser's operations, and would be required to consist of policies and procedures reasonably designed to minimize material service disruptions after a significant business disruption. These policies and procedures must address the following issues and topics, some or all of which may already be addressed by many Advisers' current BCPs:

  1. Maintenance of critical operations and systems, and the protection, backup, and recovery of data, including client records.
  2. Pre-arranged alternate physical location(s) of the Adviser's office(s) and/or employees;
  3. Communications with clients, employees, service providers, and regulators; and 
  4. Identification and assessment of third-party services critical to the operation of the Adviser.

Transition Planning. The Release does not point to any specific rulemaking or guidance that would currently require Advisers to have transition plans. Instead, the Release notes the failure of multiple large financial services firms in the 2008 financial crisis, but without any discussion of the failed firms' subsidiary Advisers.

The Proposed Rule provides that a transition plan must be based upon the risks associated with an Adviser's operations, and would be required to consist of policies and procedures reasonably designed to minimize material service disruptions if the Adviser's business is wound down or transitioned to others. These policies and procedures must include the following elements:

  1. Policies and procedures intended to safeguard, transfer, and/or distribute client assets during a transition;
  2. Policies and procedures to facilitate the prompt generation of client-specific information necessary to transition each client account;
  3. Information regarding the corporate governance structure of the Adviser;
    1. The SEC believes that identification of an Adviser's important decision-makers is required because these individuals understand the relationships between the Adviser and any affiliated entities and, therefore, are the persons required to assess whether and how issues at an affiliate may affect the Adviser.
    2. In turn, understanding the relationships between the Adviser and any affiliated entities is necessary for the Adviser to assess the manner in which it can exit the market with minimal adverse effect on its clients, and for the Adviser to protect itself from any issues that arise from any affiliated entities.
  4. The identification of any material financial resources available to the Adviser (because a strategy either to avoid or facilitate a transition of the Adviser's business due to the Adviser's financial distress requires considering such resources); and
  5. 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 (because knowledge of legal impediments – e.g., the requirement that shareholders or clients must approve the assignment of advisory contracts – affects the Adviser's ability to transition its business).

*     *     *

Announced in a speech by Chair White in December 2014, the Proposed Rule is the fourth of five elements of the SEC's regulatory agenda to address systemic risks posed by asset managers2 The Proposed Rule is proposed as an anti-fraud provision and, consequently, the Proposed Rule would apply to all Advisers, other than exempt reporting advisers, regardless of the Adviser's size.

We expect a significant number of comments on the Proposed Rule from various industry participants and other interested parties. As noted above, comments on the Release must be filed with the SEC no later than September 6, 2016.


1 Throughout the Release, the SEC refers to an Adviser adopting a "business continuity and transition plan." However, in a footnote, the SEC states that it recognizes that business continuity planning and transition planning address different circumstances and, further, that the Rule would not require an Adviser to consolidate a business continuity plan and a transition plan into one document. Accordingly, the remainder of this Alert refers to business continuity plans and transition plans as separate plans.

2 The fifth element, annual stress testing by large Advisers and large funds, has not yet been proposed.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.