To summarize guidance from the Securities and Exchange Commission’s (“SEC”) Division of Investment Management regarding Rule 206(4)-2 (the “Custody Rule”) under the Investment Advisers Act of 1940.
This article summarizes the SEC’s guidance on “inadvertent custody” created by broad authority in custodial agreements, custody created by standing letters of instruction, and adviser authority to transfer funds or securities between two or more of a client's accounts.
This article concludes that firms should review their existing client custodial agreements, standing letters of instruction and other arrangements carefully to determine whether they have custody and whether additional action is necessary.
This article contains information on the Custody Rule and related SEC guidance from experienced securities and financial services regulatory lawyers.
Wirig, M.T. and Poorbaugh, K.S. (2017), "The SEC provides new custody rule guidance to investment advisers", Journal of Investment Compliance, Vol. 18 No. 2, pp. 9-12. https://doi.org/10.1108/JOIC-04-2017-0021
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