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SEC urges advisors to review disaster plans

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The Securities and Exchange Commission has issued a risk alert urging advisors to update contingency plans so they can get back to work more quickly following a natural disaster such as Superstorm Sandy.

The alert follows an SEC Office of Compliance Inspections and Examinations survey of 40 advisors prompted by the aftermath of Superstorm Sandy. The survey examined the region hit and assessed the storm’s impact on the financial services industry and the clients it serves. More importantly, it reviewed how well the disaster plans actually worked. Superstorm Sandy hit the greater New York area in October 2012, causing vast damage and closed U.S. equity and option markets for two days. The survey was conducted under the direction of the SEC’s National Examiner Program

For today’s advisors, disaster plans are a must, legally required by SEC rules. Things like back-up power and offsite server back-ups are the norm. However, by examining how these systems actually worked during a large-scale natural disaster, the SEC took the opportunity to determine their effectiveness.

One of the unexpected problems? Several businesses were not prepared for the amount of employees who wouldn’t be able to work from home. Having contingency plans for functioning without key personnel for extended periods was one suggestion offered.

Among its other findings, the SEC included several areas where advisors should direct their attention and adjust their disaster plans, including preparing for widespread business disruption, securing alternative locations, telecommunications systems and checking the preparedness of key vendors. Of course, power was a major issue following Sandy, however a more surprising problem for many advisors was dealing with vendors who were slow to get back to work.

“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,” said OCIE Director Andrew Bowden.  

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