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02 April 2020

Regulators Respond to an Unprecedented Confluence of Events

By Matt Ahlstrand

Call it “The Perfect Storm.”

What started as a distant health crisis became a global pandemic, which brought the world economy to a halt, which sent the markets into a tailspin, which has investors in a panic. The RIAs who serve those investors have been forced out of their workplaces and are rapidly improvising to meet their clients’ needs – while simultaneously trying to protect their families’ health, school their children, and sustain their livelihoods. To call this confluence of events “unprecedented” is an understatement; particularly given the recent update from the Coronavirus task force that social distancing has been extended to April 30th, in an effort to continue combating the spread of the virus.

The SEC has recently waded into this perfect storm, catching firms off guard in the middle of exams, requesting to know whether they had prepared for this crisis and how they are managing it. We spoke with our colleague Toby Cochran, President of the compliance consulting firm Focus 1 Associates LLC, who likened it to “The Hunt for Red October:” There’s a fire in the engine room, and someone wants to conduct a fire drill.

Timing aside, much can be learned from knowing what the SEC is requesting as part of their examination process. Just recently, three Focus 1 RIA clients reported that they had received the SEC’s request for COVID-19-related information – two of the firms during exams in progress, and the third while preparing for an upcoming exam. The request includes an extensive list of questions around firms’ preparedness for this crisis, such as:

  • Does the firm have a written business continuity plan (BCP), or specifically a pandemic response plan?
  • Has the firm activated its plan in the current crisis, and if so, how?
  • What operational issues has the firm encountered in having employees work remotely?
  • Can the firm exercise effective vendor oversight with staff working from home?
  • Is the firm prepared for several weeks or even months of remote work?

The clear implication emerging from this line of questioning is that conducting business from multiple homes without the resources and infrastructure of an office raises potential compliance risks. The commission is also reportedly conducting a wider information-gathering sweep of firms not targeted for exams. The Investment Advisers Association (IAA) has intervened on behalf of RIAs and asked the SEC to give firms some breathing room during this unusual time. You can be sure, however, that “pandemic planning” will become an area of investigation in future exams, and the lessons learned from this crisis will have a major influence on firms’ continuity planning and preparation.

No one can predict when a disaster will strike or what form it will take but what is certain is that Advisors’ business continuity plans are being stress-tested in real time on an unprecedented scale. Focus 1 suggests that you document what’s working and what’s not, any considerations for future improvements, and the impact (risks and conflicts) on your overall compliance framework. 

SS&C Advent is actively working with clients to help them deploy their own contingency plans and alleviate operational challenges. To keep their clients informed, firms are adapting by leveraging electronic communications and client portals in lieu of paper reports or in-person conversations. Many firms that don’t already access SS&C Advent’s technology solutions in the cloud are asking about it and inquiring about services such as reconciliation, performance updates and more to help ease the strain on their remote workforce.

As a provider of critical services and systems, SS&C Advent has put in place and now activated procedures that will ensure we can support our clients for the duration of this crisis. We are highly attuned to the disruptions both our clients and their clients are going through. We are committed to providing you with the technology tools, data, services, and on-call expertise you need to operate with minimal disruption during this event. I encourage you to read SS&C Advent’s statement on the COVID-19 crisis.

Above all, we hope you and those close to you are healthy and safe. We will weather this perfect storm together.