Insights & News

Client Alert, July 2016
What You Need to Know About the SEC’s New Proposal on Investment Adviser Business Continuity and Transition Plans

July 26, 2016
Client Alert
On June 28, 2016, the U.S. Securities and Exchange Commission (the SEC) proposed new rule 206(4)-4 under the Investment Advisers Act of 1940 (the Advisers Act), which would require registered investment advisers to adopt and implement written business continuity and transition plans that include certain specified components (the Proposal).1 The Proposal is designed to ensure that investment advisers have plans in place to address operational and other risks related to significant disruptions and transition events in the advisers’ operations in order to minimize client and investor harm.2  Although the SEC recognizes that advisers may not be able to prevent significant disruptions or transition events, it believes that robust planning across all SEC-registered advisers can help mitigate the effects and, in some cases, minimize the likelihood of reoccurrence.3

Proposed rule 206(4)-4 comes under the SEC’s authority in Section 206(4) of the Advisers Act to adopt rules and regulations that “define, and prescribe means reasonably designed to prevent, such acts, practices, and courses of business as are fraudulent, deceptive, or manipulative.”4  In the Proposal, the SEC states that investment advisers, as fiduciaries, owe their clients the duties of care and loyalty, which require advisers to take appropriate steps to protect their clients’ interests from being placed at risk as a result of the advisers’ business continuity and transition events.5  Because this fiduciary duty “fosters trust between the client and its adviser,”6  the SEC states that it would be “fraudulent and deceptive for an adviser to hold itself out as providing advisory services unless it has taken steps to protect clients’ interests from being placed at risk as a result of the adviser’s inability (whether temporary or permanent) to provide those services.”7

The Proposal is the fourth in a series of SEC proposals designed to address the impact of investment activities on investors and the financial markets, and the risks associated with the increasingly complex portfolio composition and operations of the asset management industry.8

Read for the full version here.

Related Services

back to top