SEC Approves Custody Rule Amendment
12/23/2009
The Securities and Exchange Commission (SEC) approved on December 16, 2009 amendments to Rule 206(4)-2 ("the Custody Rule") under the Investment Advisers Act of 1940. The approved amendments - which do not fully incorporate requirements set forth in the SEC's May 2009 proposal - are intended to increase safeguards over client assets held by SEC-Registered Investment Advisers (RIAs).
Key changes from the May 2009 proposal and certain provisions of the Custody Rule, as amended, are as follows:
- RIAs are not deemed to have custody solely based on the fact that they withdraw fees from client accounts.
- RIAs of hedge funds whose assets are held by an independent custodian will not be subject to surprise exams if they issue annual financial statements audited within 120 days of year-end by an accounting firm registered with and subject to inspection by the Public Company Accounting Oversight Board (PCAOB).
- If an RIA or affiliate serves as custodian of client assets, they will be subject to a surprise exam and will also be required to obtain a report on internal controls (SAS 70).
Rule amendments adopted on December 16, 2009 are effective 60 days after their publication in the Federal Register. The SEC has not yet issued the details of the amendments, but anticipates doing so shortly.
For more information about these amendments, please contact a member of your J.H. Cohn Financial Services team at 877-704-3500.