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Topic: Custody

Think You Don’t Have Custody? Think Again

November 10, 2017
Some advisers may believe they donít have to comply with Rule 206(4)-2, the Custody Rule, because they do not possess client assets. Such a belief could get them in trouble, both with clients and with the SEC. Turns out there are at least five types of custody Ė and only three of them involve asset possession.

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Custody Three Times: SEC Staff Provide Some Rule 206(4)-2 Answers

March 9, 2017
Few Advisers Act rules are as bedeviling to investment advisers as Rule 206(4)-2, the Custody Rule. In a welcome development, the SEC staff recently provided some clarity in regard to three topics that involve the Rule: standing letters of authorization (SLOAs), first-person transfers, and inadvertent custody.

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No-Action Letter Clears Up Sub-Adviser Custody Question

May 6, 2016
Itís good news for advisers that find themselves acting as sub-advisers in a certain kind of custody arrangement. The SEC staff on April 25 issued an unprompted no-action letter, which it sent to the Investment Adviser Association to "share with your members."

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Accounting Firm Settlement is Latest Example of SEC Focus on Gatekeepers

May 6, 2016
An SEC settlement with a Maryland-based accounting firm over allegations that the firm conducted deficient surprise custody examinations provides new evidence that the agency is pursuing what it calls "gatekeepers" Ė accounting firms, attorneys, consultants and other third parties that work with advisers.

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Failure to Supervise Chief Compliance Officer Leads to Loss of SEC Registration

May 6, 2016
If only they had properly supervised the chief compliance officerÖThen $840,000 in client funds might not have been allegedly misappropriated by the CCO, the adviser might not have had to endure multiple enforcement actions, the advisory firm owners might have avoided civil money penalties, and the firmís investment adviser registration might not have been revoked. Unfortunately, thatís not the way it played out.

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Custody Requirements Not Changed by Elaborate Advisory Structure

April 22, 2016
An adviser who does business through seemingly disparate financial entities is still subject to the Custody Rule Ė particularly if the SEC perceives those financial entities collectively as a single integrated unit.

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Two Strikes: Adviser in Custody Case Faces Harsher Penalties the Second Time Around

December 4, 2015
Five years ago, the SEC settled with an adviser by charging the firm $60,000. Last month, when the agency settled with the adviser again in regard to similar violations, the SEC was a bit harsher: It raised the fine to $1 million, required the retention of a compliance monitor, set daily penalties for future failures to comply, and suspended the firm from the industry for a year.

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IAA Supports SEC Effort to Gather More Adviser Data, But Wants Some Changes

August 21, 2015
Enhanced risk monitoring and regulatory safeguards are fine, but please do it in a way that reduces the regulatory burden on small advisory firms and protects client confidentiality. Also, as long as youíre tinkering with Form ADV, please clear up the confusion on the current form regarding custody.

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Advisers May Retain Custody After Selling Their Firms

August 21, 2015
An advisory firm owner who sells his firm but maintains multiple overlapping responsibilities with the funds he created may still have custody of the client assets in those funds.

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Custody Exam/Audit May Not Be Required When Adviser and Client Are the Same

April 24, 2015
It may seem a bit odd for advisory firms to arrange surprise independent verification exams of funds in principal accounts. Now they may no longer have to. The SEC staff, in a March 23 no-action letter, told an advisory firm that it would not recommend enforcement action against it for violating Rule 206(4)-2, the Custody Rule, if the firm does not comply with the Ruleís independent verification and account statement delivery provisions.

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Mutual Fund Cash Collateral Must Be Held at a Custodial Bank

February 27, 2015
Advisers to registered mutual funds must treat collateral cash the same as other securities when it comes to custody.

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2014 Adviser Profile: More SEC-Registered Advisers and RAUM

October 31, 2014
Better put a new chalk mark on that measuring stick. The investment adviser community is growing.

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Custody, Recidivist and CCO Issues Merge in Case Against Adviser

October 31, 2014
The SEC doesnít take even technical violations of the Custody Rule lightly.

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Sham Custodian Case Raises Qualified Custodian Questions

August 15, 2014
How well does your firm know the qualified custodians it works with?

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Okay to Commingle Client and Non-Client Funds in Certain Escrow Accounts

July 16, 2014
SEC staff, in a recent guidance update, provided some comfort to advisers that place sale proceeds for a limited period of time in an escrow account.

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New Custody Guidance Spells More Work for Certain Private Fund Advisers

July 11, 2014
Ask a question and you may get an answer you donít like.

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Custody: Catch the Problems Before the Examiners Do

May 9, 2014
It really comes down to a focus on compliance.

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Examiner Discovery of More than $750,000 in Missing Assets Leads to Custody Rule Charges

May 9, 2014
Itís not easy to hide a loss of more than $750,000 in client assets from examiners. Nor is it a good idea to try.

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Custody Email from SEC Staff Adds Wrinkle to Form ADV Amendment Filing

March 14, 2014
Itís March, and for many investment advisers that means filing their Form ADV amendments with the SEC before monthís end. Now the agency staff has added a new wrinkle: a March 5 "reminder" email that attempts to clarify how you answer the formís custody questions.

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Custody and Independent Accountants: Question When Hiring, then Monitor

January 3, 2014
Don't assume that independent accounting firms are familiar with investment advisers and the requirements of the custody rule. In fact, according to a former top SEC accounting official, most are not.

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