Business Continuity Planning: The SEC’s Next Private Funds Focus Area?

It remains to be seen, but speculation is building in the private funds industry that business continuity planning is the SEC’s next exam focus area.

As a financial services industry cloud provider, Navatar takes the topic of business continuity planning seriously. Which is why we recently touched upon business continuity, cybersecurity, valuation and fee disclosures with a SEC examiner as part of a wider discussion on private equity exams, which clients tell us are becoming tougher as the years go on.

The commission took a strong interest in business continuity planning after Hurricane Sandy exposed Wall Street’s vulnerability to major natural disasters in 2013. That concern never really went away, but a recent two-year sweep of the industry shifted regulators’ focus towards bigger concerns like fee disclosures and conflicts of interest. Fees no doubt will remain an exam priority, but with that sweep over, and a general outcome of improved disclosures, it appears that business continuity planning is back on the table.

It explains why in June the SEC circulated guidance advising registrants to think harder about what business continuity planning means under federal securities laws without citing any specific statute. At the same time, the SEC proposed a rule to fill that gap, so it is not unreasonable to believe that “inadequate” business continuity planning will be an item on future deficiency letters or enforcement proceedings.

The real upshot, though, is that good business continuity planning is good business strategy. During times of disruption, GPs need an ability to reach investors, provide employees remote data access and demonstrate resolve during a time of uncertainty. And, yes, it also means a clean bill of health from SEC examiners, who are probing deeper into registrants’ critical business operations.

But don’t’ take our word for it, hear it directly from a SEC examiner, who recently answered some burning questions on business continuity planning and other private equity exam areas.