Documenting Continuity Plans Amid Coronavirus: A Guide for Fund Advisers
In response to the outbreak of coronavirus disease 2019 (“COVID-19”) and subsequent operational disruptions throughout the world, the Securities and Exchange Commission (the “SEC”) issued guidance and conditional regulatory relief for fund managers, registered investment companies and their respective boards. Such relief included (i) orders under the Investment Advisers Act of 1940, as amended, which relieves certain registered investment advisers and exempt reporting advisers (each, an “Adviser”) from the timeliness requirements of Form ADV and Form PF filings and the Form ADV Part 2 client delivery obligations and (ii) an order under the Securities Exchange Act of 1934, as amended, which provides conditional regulatory relief to SEC registrants, including Advisers, to delay certain Schedule 13Gs that would otherwise be required to be filed from March 1, 2020, through April 30, 2020. In addition, the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) has stated it may contact an Adviser to discuss or obtain information about how the Adviser plans to navigate COVID-19, including the implementation and effectiveness of the Adviser’s business continuity plan.
It is critical that Advisers be prepared to explain the effects of COVID-19 on their business operations. Advisers need to be able to document and present – whether now in real-time or in the future, in response to OCIE or other regulators, or during investor due diligence – how their business continuity plans are currently operating and how they intend to operate in the immediate and long-term future. We stated in a previous Stroock Alert how critical it is that an Adviser’s senior personnel take a proactive approach now to document their current activities, as they will be reviewed and scrutinized by regulators, counterparties and investors. Regulators specifically will be reviewing the Adviser’s preparation and response to COVID-19. Advisers should focus on compiling information now on (i) how effectively their business continuity plans are operating in response to COVID-19 and (ii) assessing their long term viability given COVID-19’s impacts to the Adviser’s business. Specifically, Advisers should make sure they are documenting real-time information to:
- Identify any weaknesses and limitations that the Adviser is facing and address plans to improve such weaknesses and limitations;
- Explain the effectiveness of an Adviser’s work-at-home environment and how it is being remotely monitored and supervised;
- Demonstrate the Adviser’s ability to maintain effective operations for an extended period of time;
- Target the effectiveness of the business continuity plans of the third-party vendors that the Adviser relies upon and the communication/supervisory plans between the Adviser and third-party vendors; and
- Identify various hardships, financial or otherwise, the Adviser faces in an extended business continuity environment.
COVID-19 has caused businesses of all types to address contingencies that many companies may not have anticipated or been prepared to operate under. The Adviser should review its business continuity plans and compliance manual to ensure its procedures specifically address the effects of pandemics similar to COVID-19 or otherwise. If an Adviser does not have policies and procedures specifically regarding pandemics, they should adopt them as soon as possible and integrate them into current plans and manuals.
At Stroock, we have established a multidisciplinary task force focused on coronavirus-related legal issues. Our aim is to provide holistic and proactive business guidance.
Please do not hesitate to contact us with any questions or concerns you may have during this period, including assistance drafting any documentation referred to herein.
For More Information
 Press Release 2020-63: SEC Takes Targeted Action to Assist Funds and Advisers, Permits Virtual Board Meetings and Provides Conditional Relief from Certain Filing Procedures. https://www.sec.gov/news/press-release/2020-63; Press Release 2020-73: SEC Extends Conditional Exemptions from Reporting and Proxy Delivery Requirements for Public Companies, Funds, and Investment Advisers Affected By Coronavirus Disease 2019 (COVID-19), https://www.sec.gov/news/press-release/2020-73
 Release No. 34-88318: Order Under Section 36 of the Securities Exchange Act of 1934 Granting Exemptions from Specified Provisions of the Exchange Act and Certain Rules Thereunder. See also “SEC Issues Regulatory Relief for Investors and Advisers Amid COVID-19 Pandemic,” Stroock Special Bulletin, March 17, 2020.
 Announcement: OCIE Statement on Operations and Exams – Health, Safety, Investor Protection and Continued Operations are our Priorities. https://www.sec.gov/ocie/announcement/ocie-statement-operations-health-safety-investor-protection-and-continued
 See “What a General Counsel of a Private Fund Adviser Should Be Doing Today to Manage the Coronavirus Crisis,” Stroock Special Bulletin, March 12, 2020.
This Stroock publication offers general information and should not be taken or used as legal advice for specific situations, which depend on the evaluation of precise factual circumstances. Please note that Stroock does not undertake to update its publications after their publication date to reflect subsequent developments. This Stroock publication may contain attorney advertising. Prior results do not guarantee a similar outcome.