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Business Continuity Planning to Safeguard Client Assets

Instructor: Ben Galloway
In this lesson, we will be discussing the current FINRA requirements for member firms to have a business continuity plan to safeguard client's assets.

The Unknown of Catastrophic Events

We have all witnessed unknown events that leave us speechless and cause mayhem in people's lives and business operations. Some of the ones that come to mind immediately are 9/11, Hurricane Katrina, and Hurricane Irma. When events like these happen, various businesses can be closed for days, weeks, or even months. The question for us is, how does a firm operate if there is a major event and it is forced to close or is destroyed?

In any good business plan, an owner must develop plans for a multitude of what-if scenarios. In the financial services industry, a member firm is required to have a business continuity plan as part of the overall business plan. That plan must include ways to keep operations open so a firm can provide clients with communication channels as well as ways to access their investment accounts and make orders.

Could you imagine if all your investments were with a single investment firm and a hurricane came through your area resulting in the firm being destroyed? How would you be able to execute orders, request money to be transferred, make important changes to the account, or ask for advice? Typically, when major events like these occur, they have large financial impacts in the markets and on the people affected. These are the critical times investors need advice and access to their funds.

Emergency Prep Requirements

FINRA Rule 4370 outlines what must be in place for a member firm to be fully prepared to continue business in the event of an emergency shut down. Member firms must maintain a written business continuity plan that addresses how the firm will fulfill its existing commitments to its customers and critical counter-parities. A firm is required to review and update this plan annually to account for any material changes that have occurred to the business.

Members firms must have a designated member of management - who must also be a registered principal - conduct an annual review and approval of the plan. Firms must disclose to their customers plans for continuing in the event of a shutdown, which can be done in writing, mailed upon request, or posted on their website.

Member firms must also submit the information of two emergency contacts to the regulatory agencies, and the contacts must be senior managers and registered principals. Firms are required to update this emergency contact information when any material changes occur and verify the information within 17 business days of each calendar year's end.

Elements to a Business Continuity Plan

The key elements that must be addressed in a business continuity plan are as follows:

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