When talking with advisors and trying to keep them up to speed on the latest regulatory changes it’s become difficult for me to keep track of the changes at both the state and federal level. I got to thinking that it would be great if there was one place with all the information. So, we decided to make a dedicated webpage designed to keep track of it all.
The webpage contains information for both state regulated RIAs and SEC regulated RIAs. We’ve posted a copy of the North American Securities Administrators Association (NASAA) model rule as well as the proposed SEC rule. There are even pre-recorded webinars that go in depth into each model rule and how it impacts advisors.
In April of 2015 NASAA issued a model rule for state registered investment advisors to adopt continuity and succession plans to protect clients in the event of the loss of key personnel. Since the model rule was issued, each state has been in the process of adopting its own rule. To date, the following states have adopted the rule or have a proposed rule which is pending adoption: Arkansas, California, Illinois, Michigan, Mississippi, Nebraska, New Jersey, Ohio, Pennsylvania, Vermont, Virginia and Washington. On the webpage each state is hyperlinked to its respective state’s rule or proposal where available.
There is nothing that says each state must adopt NASAA’s model rule, nor is there a time frame for them to adopt it in. If you call each state’s bureau of securities, as I have, you will get several different answers. The most common answer is that it’s a best practice and we certainly look for it on examinations but it’s not a requirement yet. Some states have cited continuity of care for clients as being important but it’s taking a back seat to other issues like cyber security and elder abuse. While other states are waiting for the SEC to form their final rule before producing their own language and formally adopting the rule.
According to Brian Young, Vice President, Advisor Services at compliance firm AdvisorAssist, the SEC originally addressed business continuity plans under broad terms back in 2003 with the adoption of rule 206(4)-7 under the Advisers Act. Since then, the SEC has observed RIAs with a wide range of plans to address operational risk, due to both internal and external business continuity events. On June 28, 2016, the SEC proposed a formal rule requiring RIAs to maintain written policies and procedures that address business continuity and succession planning. Details of the proposal can be found on the Pinnacle webpage and according to Young the comment period for the proposed rule ended on September 6, 2016 and rule is likely to be formally introduced shortly.
Young believes that while a few states have formally adopted the business continuity rule, most states have identified business continuity plans as a best practice for a number of years. It is likely that with the formal adoption of the SEC business continuity rules, these states with shortly follow suit and institute a formal rule of their own.