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 under the Rule. The staff updated the FAQ in May 2010 to address questions regarding whether or not custody exists under particular circumstances (as discussed in the June 1, 2010 Alert). The new/revised questions in the September 2010 update address issues regarding whether or not custody exists when an adviser has the authority to instruct a qualified custodian to remit certain funds or securities to a client at his or her address of record, and the related issue of the adviser’s ability to change the client’s address of record without being deemed to have custody. Additionally, the new/revised questions in the September 2010 update provide links to examples of (i) a report that maybe issued by an independent public accountant performing a surprise examination, and (ii) a report that would satisfy internal control report requirements.
Alert October 05, 2010