SEC Proposes Rule Requiring Investment Advisers to Adopt Business Continuity and Transition Plans; Division of Investment Management Issues Related Guidance for Investment Companies

July 18, 2016

The U.S. Securities and Exchange Commission (SEC) on June 28, 2016, proposed new Rule 206(4)-4 (Proposed Rule) under the Investment Advisers Act of 1940 (Advisers Act). The Proposed Rule would require every SEC-registered investment adviser (adviser) to adopt, implement and annually review a written business continuity and transition plan with certain enumerated components, reasonably designed to address the risks of a significant disruption in the adviser’s operations. The SEC also proposed amendments to Rule 204-2 under the Advisers Act, which would require advisers to maintain copies of all business continuity and transition plans in effect during the past five years and any records related to the annual review of the plan. Comments on the Proposed Rule and proposed amendments are due on or before September 6, 2016. The Proposing Release does not include a proposed compliance date or timeframe.

On the same day, the staff of the SEC’s Division of Investment Management (Staff) issued a Guidance Update that “discusses a number of measures that the [S]taff believes funds should consider as they evaluate the robustness of their fund complex’s plan in order to mitigate business continuity risks for funds and investors.” Among other things, the Guidance Update emphasizes the Staff’s view that a fund complex’s business continuity plan should reflect critical service provider interrelationships and the fund complex’s planned response to significant business disruptions experienced by such service providers.

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