US regulators issue guidance on disaster recovery and BCP

US regulators issued guidance on effective disaster recovery (DR) policies and business continuity planning (BCP) at financial institutions.

The securities and Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC)’s Divison of Swap Dealer and Intermediary Oversight and the Financial Industry Regulation Authority (FINRA) have all advised firms to prepare for widespread disruption. The guidance comes as 2013 Hurricane season gets underway 10 months after Hurricane Sandy caused massive disruption to financial services on the East Coast. Hurricane Sandy had shut down the NASDAQ and NYSE for two days while Goldman Sachs and Citi told their employees to work remotely.

This regulatory warning was issued after the SEC and FINRA questioned asset managers at the beginning of 2013 about how their BCP and DR worked during Hurricane Sandy, as they wanted to identify weakness in infrastructure and procedures.

While Dodd-Frank stipulates managers must have disaster recovery and business continuity in place, it defines them broadly. Nonetheless, institutional investors have made it no secret they want managers to employ effective disaster recovery and business continuity policies.

Natural disasters are not the only threats to hedge funds’ infrastructure and business continuity. The importance of disaster recovery and business continuity was also reiterated in a recent paper on systemic risk by the Depositary Trust & Clearing Corporation (DTCC), which identified cyber-crime as the biggest threat to market stability, putting it ahead of counterparty risk and concentration risk at central counterparty clearing houses (CCPs).

Cyber-threats can take many forms. The most obvious include denial of service, unwanted disclosure of non-public material data and the corruption of books and records. A DTCC survey of exchanges reported 53% had experienced a cyber-attack in the last 12 months. The reputational risk and potential systemic risk of falling victim to one of these attacks is enormous, and it is something hedge funds ought to protect themselves against. An effective disaster recovery and business continuity plan as well as a partnership with a managed security services provider is essential to a hedge fund’s success.

Contact us at 212.997.0600 to discuss how DDKinfotech can customize a disaster recovery and business continuity plan that meets your specific business needs.


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