SEC ISSUES WARNING REGARDING DISASTER INVESTMENT ADVISORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) issued a Risk Alert on business continuity and disaster recovery planning for investment advisers.  The alert was prompted by a review of responses to Hurricane Sandy, which caused widespread damage to Northeastern states and closed U.S. equity and options markets for two days in October 2012.

The Risk Alert follows a joint advisory issued on August 16 by OCIE, the Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight, and the Financial Industry Regulatory Authority on business continuity and disaster recovery planning in the aftermath of Hurricane Sandy.  While the joint advisory covered a broad array of firms, the Risk Alert focuses exclusively on investment advisers.  Both documents are intended to encourage firms to review their business continuity plans so as to improve responses to and reduce recovery time after significant large-scale events.

“Our staff examined approximately 40 advisers in the aftermath of Hurricane Sandy to assess their preparedness for and reaction to the storm,” said OCIE Director Andrew Bowden.  “We hope our observations in this Risk Alert and those in the earlier joint advisory will help industry participants better prepare for future events that threaten to disrupt market operations.”

The Risk Alert makes observations in the following areas:

Preparation for widespread disruption
Planning for alternative locations
Preparedness of key vendors
Telecommunications services and technology
Communication plans
Reviewing and testing
Firms can strengthen their business continuity and disaster recovery plans by considering the observations in the Risk Alert and implementing or strengthening practices as appropriate.