It’s Time to Revisit Business Continuity Planning: What Works and What Does Not Work

by Dechert LLP

Recently, the Securities and Exchange Commission (“SEC”) and other U.S. financial regulators (collectively, “Regulators”) issued important guidance related to the need for industry participants to maintain business continuity and disaster recovery plans (“BCPs”). First, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) published a National Exam Risk Alert (“Risk Alert”) prepared by the staff and directed to U.S.-registered advisers. Hurricane Sandy prompted the SEC’s National Exam Program (“NEP”) to review the BCPs of about 40 advisers. The NEP assessed the impact of Hurricane Sandy on processing securities transactions (e.g., order taking, order entry, execution, allocation, clearance and settlement) as well as delivery of funds and securities, client relations, financial and regulatory obligations and technology, among other topics. In addition, the SEC, the Commodity Futures Trading Commission (“CFTC”) and the Financial Industry Regulatory Authority (“FINRA”) jointly issued (“Joint Publication”) best practices and lessons learned guidance concerning business continuity planning that is more broadly applicable. The core message of the Risk Alert and the Joint Publication is that BCPs should be the result of careful and comprehensive planning, thorough preparation, strategic redundancy and geographic diversity applied to critical supply chain providers, good internal and external communications and testing.

Each of these publications identifies the same list of categories, which are reflected below. The Risk Alert is written as a series of suggestions concerning activities that were or were not effective, while the Joint Publication takes the form of “best practices” guidance.

Widespread Disruption Considerations

What Works

The Regulators credit firms that create and maintain comprehensive written BCPs that address critical systems customized for the firm’s particular business operations. BCPs that are the result of collaborative participation between Compliance and all business lines and operations units tend to be more effective. BCPs that provide employees with the ability to work remotely (especially when there is sufficient systems capacity to support the increased work load following a crisis) also can be more effective than those which do not. BCP effectiveness can be enhanced when the drafters contemplate widespread outage events of long duration and the loss of key personnel for an extended period.

What Does Not Work

By contrast, the Regulators note that insufficiently comprehensive BCPs and those that do not provide for mobile or remote access by employees are often ineffective.

Alternative Location Considerations

What Works

In the view of the Regulators, BCPs should provide for proactive initiation of backup or alternative sites and facilities. Firms also should consider locating backup or additional facilities on a different power grid or in a geographically diverse location. Redundant or mobile connectivity to the Internet is an important consideration.

The Regulators also noted that, in the event geographic diversity or an alternative facility is part of the BCP, it is important to adequately train staff and provide them with access to print versions of policies, procedures, contact lists, etc. Advance reservation of hotel rooms or alternative space can be useful.

What Does Not Work

On the other hand, the Regulators noted concerns with BCPs that concentrate technology, facilities and operations in one geographic region.

Vendor Relationships

What Works

The Regulators advise including in the BCP an inventory of critical vendor relationships, ranked according to risk, in advance of an event. As a part of the vendor due diligence process, inquiry should be made regarding the BCPs of critical suppliers.

BCPs should be tested annually and, to the extent possible, geographic diversity principles should be applied to the vendor BCP due diligence process.

What Does Not Work

The Regulators contrasted poor BCPs that have no information about suppliers and no current list of vendors and related contact information.

Telecommunications Services and Technology Considerations

What Works

The Regulators suggest that firms consider redundant infrastructure providers for telecommunications and electricity, remote access for employees with enough supporting operational and systems capacity to enable the work to be performed. This could include having multiple sources of key data accessible to employees remotely or consideration of a cloud computing solution (either of which will require addressing the related information security concerns and outsourcing contract compliance governance).

What Does Not Work

Do-it-yourself systems maintenance seldom is effective due to the risk that local staff may not be able to perform the tasks.

Communication Plans

What Works

The Regulators favored BCPs that provide for wide dissemination of contact information internally and externally, including contact information for customers, suppliers, regulators, SROs and market participants. A process should be created for updating websites and telephone answering messages while in contingency mode. Participation in industry groups also improves communication.

What Does Not Work

BCPs that lack clarity about roles and responsibilities of staff during a crisis and lack of ready-to-hand contact information are prone to failure in the event of an emergency.

Regulatory Compliance

What Works

BCPs that include regulatory compliance considerations and reporting requirements also found favor with the Regulators. These are even more effective when they are regularly updated to include new regulations and SRO rules.

What Does Not Work

BCPs that do not assure that firms are attending to regulatory obligations are viewed as insufficient.

Review and Testing

What Works

The Regulators suggest testing the BCP immediately prior to a crisis or activating contingency systems in anticipation of an event against expansive and imaginative scenarios. There are technology vendors who are in the business of helping organizations conduct realistic tabletop exercises to make testing more effective.

The Joint Publication also suggests including stress tests in the BCP. The Joint Publication indicates, for example, that “firms could perform a stress test on their liquidity position and review the level of excess customer reserves” and may wish to adjust cash reserves, as appropriate, in anticipation of an event.

What Does Not Work

By contrast, failing to test the BCP against critical business functions or against limited scenarios is a sign of weak BCPs.


The development of a BCP is complicated and contextual. The collected wisdom of the Regulators is very useful advice, but the guidance is not without its problems. For example, acquiring redundancy in infrastructure and vendor products will increase operating costs and may not be feasible for all firms or could detract from addressing other compliance needs. More mobile or remote solutions can increase the risk of information security lapses. Also, many suppliers keep the locations of their recovery sites confidential in order to reduce the risk of sabotage. Cloud computing solutions may create regulatory issues, such as compliance with time, place and manner requirements as to recordkeeping. Firms should consider the guidance, within their own contexts and operations, in creating, maintaining, updating, testing and implementing BCPs.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dechert LLP | Attorney Advertising

Written by:

Dechert LLP

Dechert LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.