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The weekly news source for investment management legal and compliance professionals

Topic: Custody

Survey: Cybersecurity Again Hottest Compliance Topic, Custody Drops

July 19, 2019
Advisory firms nationwide continue to be highly concerned about cybersecurity, with approximately 83 percent of them naming it their highest compliance concern for the sixth year in a row. Concerns about custody compliance, however, are down from last year.

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SEC Moves Custody Rule Reform to the Fast Track

June 14, 2019
The SEC plans to propose amendments that will reform the Custody Rule within the next 12 months. The rule’s reform will join agency plans to take other actions within that same time period, including changes to the Advertising Rule, long identified within the asset management community as needing reform, the Cash Solicitation Rule, the use of derivatives by investment companies, and fund of funds arrangements.

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Custody Rule Reform: SEC Seeks Input on Non-DVP Practices, Digital Assets

March 15, 2019
The SEC staff, in what might be considered a prelude to reform of Advisers Act Rule 206(4)-2, the Custody Rule, on March 12 issued a public letter to the Investment Adviser Association seeking answers to questions involving a certain type of custodial practice, as well as questions related to custody of digital assets. Reform of the Rule is listed on the agency’s long-term regulatory agenda, and the letter should be a welcome sign to those calling for the SEC to move forward.

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Determine Auditor’s Custody Rule Savvy before Engagement

February 1, 2019
The Custody Rule can be a major headache for advisory firms and their legal counsel. It is complicated, open to interpretation, and the SEC is on the lookout for advisers – and accounting firms – that violate it. All the more reason, for both advisers and auditors to be knowledgeable and experienced about the Rule before taking steps that may violate its requirements.

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‘Comprehensive Overhaul’ of Custody Rule Urged by IAA

January 11, 2019
The Investment Adviser Association wants the SEC to consider a “comprehensive overhaul” of Advisers Act Rule 206(4)-2, the Custody Rule, which would, among other things, limit the Rule to risks presented by “actual physical custody.” Other proposed changes included considering circumstances when surprise examinations might not be required, and excepting certain clients or services from the Rule’s requirements.

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Inadvertent Custody: New FAQs Attempt to Clarify Enforcement

June 15, 2018
Sometimes a regulator articulates a new legal standard a bit too broadly, causing confusion among the regulated, and then seeks to clarify what it meant – only to cause still more confusion. Such may be the case with the Custody Rule and the SEC staff, which earlier this month issued two FAQs regarding the relatively new concept of "inadvertent custody."

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Advertising and Custody Rule Reform on SEC’s Latest Regulatory Agenda

June 8, 2018
It’s beginning to look like the next 12 months may be a period of wish fulfillment for advisers, funds and attorneys who have long called for the SEC to reform some of its existing Advisers Act rules, the Advertising Rule and the Custody Rule among them.

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Fund Administrators that Fail to Act on Red Flags May Face Charges

February 2, 2018
Fund administrators should be under no illusion that if a fund runs into trouble, the administrator is somehow immune because it is not the fund, but simply provides services to it. Administrators have an obligation to watch for and act on red flags, particularly those that involve client assets.

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Think You Don’t Have Custody? Think Again

November 10, 2017
Some advisers may believe they don’t 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 – 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
It’s 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" – 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 officer…Then $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 firm’s investment adviser registration might not have been revoked. Unfortunately, that’s 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 – 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 you’re 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 Rule’s 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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