Regulators want firms to improve continuity plans

Advisers encouraged to increase disaster preparedness following Superstorm Sandy

Aug 16, 2013 @ 3:03 pm

By Liz Skinner

Securities regulators are encouraging advisers and other financial services professionals to enhance their business continuity plans and consider implementing recommendations that the agencies developed following Hurricane Sandy.

In four pages of guidance issued Friday, the Securities and Exchange Commission, the Financial Industry Regulatory Authority Inc. and the Commodities Futures Trading Commission staff said firms should be ready for emergencies that simultaneously cause widespread disruption in telecommunications, transportation, electricity, fuel and water services.

Firms should consider redundant telecommunications services and examine the proximity of vendors that would also be affected in a disaster, the regulators said. They stressed having communications plans to reach customers and trading counterparties, as well as ensuring that firms can update their websites remotely with information about their operations and provide contact information.

“Market reliability and resilience are vital to investors and to the fair and efficient operation of capital markets,” said Andrew Bowden, director of the SEC Office of Compliance Inspections and Examinations.

The lessons learned from Hurricane Sandy can help firms prepare for future events that could disrupt market operations, he said.

When the storm hit New York and New Jersey last October, it closed equity markets for two days, and some advisory firms in the Northeast for up to a week because of power outages and other service problems.

FINRA executive vice president Grace Vogel said regulators hope in the future, U.S. markets will be able to open more quickly. Part of the problem was that some New York Stock Exchange member firms could not remotely reconfigure their systems to trade through a different hub while the NYSE was in the flood zone, she said.

For advisers, it's important that clients be able to reach their firms quickly in case they need money during emergencies for travel, hotels and even home remediation, Ms. Vogel said.

Brokerages and advisory firms should have information on their web sites regarding how to contact their clearing firms in case they are not operating, she said.

“In their continuity plans, some firms didn't appreciate how many of their employees wouldn't have power and they assumed these people could work remotely,” Ms. Vogel said. “Firms need to have a broader plan to factor in wide loss of power for employees.”

The regulators' recommendations also include better communications and coordination with regulators, exchanges and other firms and the guidance recommends at least annual testing of emergency plans so employees are familiar with their pre-established roles.

Ian Armstrong, chief operating officer of Clear Harbor Asset Management LLC, said one challenge his firm faced during the storm was that even though power was not disrupted in their New York offices, there was no Internet access.

Once they solved the Internet issue by using their cell phones as routers, Clear Harbor's executives had to face the traffic nightmares that blocked their Brooklyn and Connecticut-based employees from getting to the office.

“The best laid plans go out the window in the real world,” Mr. Armstrong said. “Our continuity plan wasn't seamless, but it held up pretty well.”

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