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Global Trustee and Fiduciary Services News and Views
| Issue 47 | 2017
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• Pre-arranged alternate physical location(s) of
the adviser’s office(s) and/or employees.
• Communications with clients, employees,
service providers, and regulators.
• Identification and assessment of third-party
services critical to the operation of the adviser.
• Plan of transition that accounts for the possible
winding down of the adviser’s business or the
transition of the adviser’s business to others
in the event the adviser is unable to continue
providing advisory services. A transition plan
should account for: (i) transitions in both
normal and stressed conditions and should
be tailored for each client type, (ii) relevant
contractual arrangements and (iii) the
regulatory regimes applicable to the adviser.
The Proposed Rule would require that the
adviser’s business continuity and transition
plan include certain specific transition-related
components, listed below.
— Policies and procedures intended to
safeguard, transfer and/or distribute client
assets during transition.
— Policies and procedures facilitating the
prompt generation of any client-specific
information necessary to transition each
client account. This information might
include the identity of custodians, positions,
counterparties, collateral and related records
of each client.
— Information regarding the corporate
governance structure of the adviser.
— Identification of material financial resources
available to the adviser.
— An assessment of the applicable law and
contractual obligations governing the adviser
and its clients. The Proposed Rule highlights
various potential regulatory and contractual
issues (e.g. cross-border regulatory issues,
client consent requirements and automatic
termination clauses).
Annual review
Proposed Rule 206(4)-4(a)(2) would require
an adviser to review the adequacy of its
business continuity and transition plan and the
effectiveness of its implementation at least
annually. In addition, the SEC states that such
reviews should address any weaknesses identified
in connection with any testing or assessments of
the plan, as well as any lessons learned or changes
made or contemplated as a result of an event
triggering reliance on the plan during the year.
Timeframe for implementation
The Proposing Release does not include a proposed
compliance date or timeframe. In addition, with
the recent resignation of SEC Chairwoman
Mary Jo White, and the ability of the new Trump
administration now to name three Commissioners
to the SEC, it is unknown whether the SEC will wish
to move ahead with implementing the Proposed
Rule in the near future.
Karen L Anderberg
Partner
Dechert LLP
1
Form ADV and Investment Advisers Act Rule, Rel.
No. IA-4509 (Aug. 25, 2016) (Final Rule Release).
2
The categories are: (i) exchange-traded equity securities; (ii)
non-exchange-traded equity securities; (iii) U.S. government/
agency bonds; (iv) U.S. state and local bonds; (v) sovereign
bonds; (vi) investment grade corporate bonds; (vii) non-
investment grade corporate bonds; (viii) derivatives; (ix)
securities issued by registered investment companies or
business development companies; (x) securities issued by
pooled investment vehicles (other than registered investment
companies); (xi) cash and cash equivalents; and (xii) other. Final
Rule, Appendix D, Amended Form ADV, Part 1A, Schedule D,
Section 5.K.(1). Notably, these asset categories are similar
to those reported by advisers to private funds on Form PF.
3
The six types of derivatives are: (i) interest rate
derivatives; (ii) foreign exchange derivatives; (iii) credit
derivatives; (iv) equity derivatives; (v) commodity
derivatives; and (vi) other derivatives.
4
A parallel managed account is defined in the Form ADV
Glossary as follows: “With respect to any registered
investment company or series thereof or business
development company, a parallel managed account is any
managed account or other pool of assets that you advise and
that pursues substantially the same investment objective and
strategy and invests side by side in substantially the same
positions as the identified investment company or series
thereof or business development company that you advise.”
5
Dodd-Frank Wall Street Reform and Consumer Protection
Act at Section 402.
6
American Bar Association, Business Law Section, SEC No-Action
Letter (Jan. 18, 2012) (ABA Letter) at Question 4; see also SEC
Staff Division of Investment Management Response to ABA
Letter (Aug. 10, 2006) (SEC staff provided guidance regarding
interpretive issues raised by the decision in Goldstein v. Sec. and
Exch. Comm’n, No. 04-1434 (D.C. Cir. June 23, 2006)).
7
Specifically, the Final Rule did not expand the use of
umbrella registration to: non-US filing advisers; exempt
reporting advisers; advisers to other client types; or
advisers not independently eligible to register with the SEC.
Additionally, the SEC iterated that its statements regarding
cross-border application of the Advisers Act are unchanged
by the Final Rule, as are the Frequently Asked Questions
on Form ADV and IARD, Reporting to the SEC as an Exempt
Reporting Adviser. Final Rule Release Section II.A.3.
8
Adviser Business Continuity and Transition Plans
, Rel. No.
IA-4439 (June 28, 2016) (Proposing Release).
9
Tailoring may be based on the adviser’s size or whether its
technology infrastructure is primarily proprietary or outsourced.