SEC Custody Rule – "Back to the Future"
| By Brian Finnegan, BPM Shareholder. | |||
 In large part, the proposed "new" rule is identical to the rule that was in place prior to 2003. The SEC amended the custody rule in 2003, to do away with the annual surprise examination for advisers that had a reasonable belief that their qualified custodians provided account statements directly to clients. At that time, the SEC believed that direct delivery of account statements by qualified custodians would be sufficient to provide their clients the confidence that any unauthorized transactions would be reflected and would deter advisers from fraudulent activities. However, in the wake of the Madoff scandal and the revelation of many other high profile Ponzi Schemes, the SEC was forced to take action. Under the previous provisions of the Custody Rule, registered investment advisers with “custody” over their clients’ assets who maintained those assets with a “qualified custodian” (and having a reasonable belief that the qualified custodian was providing the underlying clients with quarterly account statements) were exempt from the “surprise examination” requirement in place prior to 2003. On March 12, 2010, the reinstated provisions of the surprise exam become effective, and every registered investment adviser deemed to have custody of client assets (subject to very limited exceptions) will be required to engage an independent public accountant to conduct a surprise examination to verify the existence of such client assets at least once each calendar year. Other highlights of the revised Custody Rule include:
Click below to download the official SEC memo: www.sec.gov/rules/interp/2009/ia-2969.pdf. Brian Finnegan is the partner in charge of the Financial Services Industry Practice Group at Burr Pilger Mayer, and can be reached at bfinnegan@bpmcpa.com. |
