The staff of the SEC’s Division of Investment Management (the “staff”) updated its FAQ on Rule 206(4)-2 under the Advisers Act of 1940 (the “Custody Rule”). The Custody Rule imposes a number of requirements on SEC-registered investment advisers that are deemed to have custody of their clients’ funds and securities. The staff updated the FAQ in March 2010 to address questions raised by the SEC’s adoption of amendments to the Custody Rule and related rules (discussed in detail in the January 5, 2010 Alert), which generally became effective March 12, 2010. The new/revised questions in the May 2010 update address issues regarding whether or not custody exists under particular circumstances, e.g., the posting of swap collateral, and how to comply with various aspects of the Custody Rule when a pooled investment vehicle does not fall within the exception that applies if it provides its investors with annual audited financial statements.
Alert June 01, 2010