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Business Continuity Plans for Advisers

Overview

Following the financial crisis, the asset management industry has been under scrutiny with regard to whether certain practices and products create systemic risk. (See Systemic Risk.) Advisers should thus implement and maintain business-continuity plans that allow them to continue serving clients uninterrupted during periods of disruptions and transition. 

Regulation

As regulators focused on industry practices that may be risky, former SEC Chair Mary Jo White targeted investment adviser practices that could result in disruptions of service to investors, whether through business disruptions or transitions. A 2016 SEC proposal on business continuity planning went so far as to assert that advisers who undertake to provide advisory services without implementing steps to safeguard client assets in times of disruption or transition are acting in a “fraudulent and deceptive” manner. Under the proposal, advisers would be required to have a business continuity plan that would have to include specific components.

CFA Institute Viewpoint

Little evidence indicates that advisers have failed to manage investor interests, even during times of severe stress during the financial crisis. CFA Institute therefore questions the need for widely expanded requirements in this regard.

CFA Institute recommended that the SEC impose an overarching requirement that advisers adopt and implement a business continuity plan. But rather than mandate specific requirements regarding what the plan needs to address, we recommended that the SEC provide guidance. This approach would obligate the adviser to commit to adopting and implementing a plan that reasonably addresses the risks of its specific business without the overlay of additional regulations, the cost of which ultimately may be borne by investors.

 

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