Compliance Avenue

The SEC today announced in a press release that they have approved certain amendments to the Advisers Act custody rule (Rule 206(4)-2)), which rule is applicable to investment advisers registered with the SEC. The SEC originally proposed amendments to the custody rule in May 2009.  The amendments contained in the May 2009 Proposing Release would (among other things):

• Require registered investment advisers that have custody of client assets to undergo an annual surprise examination by an independent public accountant.

• In addition, unless client accounts are maintained by an independent qualified custodian (i.e., a custodian other than the adviser or a related person), the proposed amendments would require the adviser to obtain a written report from an independent public accountant that includes an opinion regarding the qualified custodian’s controls relating to custody of client assets.

• Finally, the proposed amendments would amend Form ADV and Form ADV-E to increase the disclosure that registered investment advisers must provide to the SEC and the public about their custodial practices.

Important Note: The SEC has not yet released the text of the final rules, just the press release announcing their adoption.  Thus, it is not yet clear to what extent the final rules will track the amendments proposed in May 2009 or whether any changes were made as a result of comments submitted on the proposed amendments.

UPDATE: Details of the amendments have been released.