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News August 2, 2004 Issue

Brokers Finalizing Business Continuity Plans

Under new NASD rules approved this past spring, all broker-dealers must have business continuity plans (BCPs) in place by the end of the summer. NASD-member clearing firms must have written BCPs in place by August 11. NASD-member introducing firms have until September 10. The NYSE has adopted similar rules.

Although advisers are not explicitly required to adopt a BCP, in the compliance program adopting release, the SEC listed BCPs as one of the types of procedures that it would "expect" an adviser to have. The SEC said it believed that an adviserís fiduciary obligation to its clients "includes the obligation to take steps to protect the clientsí interests from being placed at risk as a result of the adviserís inability to provide advisory services after, for example, a natural disaster or, in the case of some smaller firms, the death of the owner or key personnel."

Advisers addressing this issue as part of their overall compliance program might want to take a look at the NASDís 13-page BCP template, designed for small introducing brokers. While some of the subject matter is inapplicable to advisers, the NASDís model procedures may provide helpful ideas to advisers.

Under the NASDís business continuity rule, each plan must, at a minimum, address ten specific categories, such as how the firm will communicate with customers and regulators if normal channels are unavailable. The NASD arranged for member firms to voluntarily deposit electronic copies of their BCPs with EVault, a private company.