SEC Proposes Asset Manager Transition Plan Rule

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By Rob Tricchinelli

June 28 — Investment advisers would have to create plans for continuing or winding down their business in case of major disruptions, under a rule proposed June 28 by the Securities and Exchange Commission.

The proposal would require fund managers to plan for technology failures, data breaches, cyberattacks, damage to physical workplace premises, and a whole host of other problems.

It is the fourth proposal of five to address the $67 trillion asset management industry during Chairman Mary Jo White's tenure, with only a stress test measure yet to emerge [ see related report in this issue].

“While an adviser may not always be able to prevent significant disruptions to its operations, advance planning and preparation can help mitigate the effects of such disruptions and in some cases, minimize the likelihood of their occurrence, which is an objective of this rule,” White said in a news release.

It was proposed unanimously by the three-member commission.

Continuity, Transitions

The proposal is in two parts. The business continuity provisions would require fund managers to map out how they would keep their business running after a “significant disruption,” and the transition plan provisions would require funds to describe how they would wind down in case they can't keep serving clients.

Business continuity plans would apply in situations involving natural disasters, terrorism, cyberattacks, system failure, vendor failure or major personnel shake-ups, the agency said.

Transition plans would apply if a fund leaves the market, merges with another fund, sells itself or spins off business, or goes bankrupt.

“The proposed rule is intended to help ensure that an adviser’s policies and procedures minimize material service disruptions and any potential client harm from such disruptions,” the SEC said. The proposal generally leaves it up to individual fund managers how to outline the plans depending on their business model, size and operations.

Asset Managers

The transition plan proposal complements three asset manager rules that were offered in 2015: data collection and disclosure requirements (98 SLD 98, 5/21/15); liquidity risk management and swing pricing (184 SLD, 9/23/15); and restrictions on funds' use of derivatives (239 SLD, 12/14/15).

Industry reaction to the other rulemakings has been largely negative (10 SLD, 1/15/16), but at least one trade group supports part of the transition plan proposal.

“We are encouraged that the proposed rule is principles-based and would allow each investment advisory firm to tailor its business continuity and transition plan as appropriate for its own business model,” Investment Adviser Association President Karen Barr said June 28.

There is a 60-day comment window on the proposal. The rule was proposed outside of an agency open meeting.

To contact the reporter on this story: Rob Tricchinelli in Washington at

To contact the editor responsible for this story: Phyllis Diamond at

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