SEC proposes investment adviser custody rule amendments to enhance safekeeping and oversight of client assets

Abstract

Purpose

The purpose of this paper is to explain a recommendation from the SEC Division of Investment Management for new rules focused on strengthening control over client assets held by registered investment advisers (RIAs) or their affiliates.

Design/methodology/approach

The paper describes Rule 206(4)‐2 under the Investment Advisers Act of 1940, known as the investment adviser “custody rule”; summarizes the three proposed amendments, which would require surprise examinations, written SAS‐70 reports, and delivery of account statements directly to advisory clients; and notes several concerns voiced by SEC commissioners.

Findings

The proposed rule amendments respond to the recent discovery of a number of investment adviser Ponzi schemes and other frauds that evidence an urgent need to reassess the regulations governing RIA custody. The SEC staff will respond to public comments and expect to have an active dialog with both RIAs and custodians in the course of developing final rules.

Originality/value

The paper presents expert analysis from experienced securities lawyers.

Citation

Blumenthal Kleiman, L. (2009), "SEC proposes investment adviser custody rule amendments to enhance safekeeping and oversight of client assets", Journal of Investment Compliance, Vol. 10 No. 3, pp. 41-43. https://doi.org/10.1108/15285810910995575