The SEC’s Office of Compliance Inspections and Examinations (OCIE) issued a “Risk Alert” on compliance with Rule 206(4)-2, the custody rule for investment advisers.
- Failure by an adviser to recognize that it has custody, such as situations where the adviser serves as trustee, is authorized to write or sign checks for clients, or is authorized to make withdrawals from a client’s account as part of bill-paying services;
- Failure to meet the custody rule’s surprise examination requirements; and
- Failure to satisfy the custody rule’s qualified custodian requirements, for instance, by commingling client, proprietary, and employee assets in a single account, or by lacking a reasonable basis to believe that a qualified custodian is sending quarterly account statements to the client.
OCIE stated that the risk alert comes after a review of recent examinations where significant deficiencies were identified that showed custody-related issues in about one-third of the firms examined.
Please click here to access the alert.