SEC Risk Alert Describes Deficiencies Found During Reviews of Investment Advisers’ Business Continuity and Disaster Recovery Plans and Recommends Best Practices for Such Plans

Almost one year ago, Hurricane Sandy caused widespread disruption and damage to businesses, including the two-day closure of equities and options markets.  For weeks, Lower Manhattan – where the New York Stock Exchange and numerous financial firms are based – was without power and had limited public transportation.  Largely in response to those disruptions, the SEC’s Office of Compliance Inspections and Examinations (OCIE) recently reviewed the disaster recovery/business continuity plans (together, BCPs) of 40 registered investment advisers.  Its recent Risk Alert (Alert) provides valuable insight into what the SEC considers best practices for BCPs.  The Alert is a targeted follow-up to the August 2013 Joint Report issued by OCIE, the Commodity Futures Trading Commission’s Division of Swap Dealers and Intermediary Oversight and the Financial Industry Regulatory Authority with regard to the business continuity and disaster recovery planning of financial firms.  This article summarizes OCIE’s findings and recommended best practices, and includes relevant insights from the Joint Report.  For a comprehensive look at BCPs and disaster preparedness, see “What Are the Key Elements of a Comprehensive Hedge Fund Adviser Disaster Recovery Plan, and Why Are Such Plans a Business Imperative?,” Hedge Fund Law Report, Vol. 3, No. 8 (Feb. 25, 2010); and “Key Elements of a Hedge Fund Adviser Business Continuity Plan,” Hedge Fund Law Report, Vol. 3, No. 7 (Feb. 17, 2010).

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