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United States: SEC Issues Adopting Release For Advisers Act Custody Rule Amendments
(Financial Services Alert - Developments Of Note

SEC Issues Adopting Release For Advisers Act Custody Rule Amendments
The SEC issued the adopting release for amendments to Rule 206(4)-2 (the "Rule") under the Investment Advisers Act of 1940 (the "Advisers Act") and related changes to Form ADV, Form ADV-E and the recordkeeping requirements for registered advisers. (Rule 206(4)-2 imposes a number of requirements on an SEC-registered investment adviser that is deemed to have custody of its clients' funds and securities.) This article summarizes the principal elements of the amendments – (a) client assets held by an adviser's related person as a basis for custody, (b) an expanded surprise examination requirement, (c) a new internal control report requirement, (d) changes to the Rule's requirements governing notice of custodial accounts and delivery of quarterly account statements, (e) additional conditions for exemptions from the Rule's requirements with respect to pooled investment vehicles, and (f) changes to Form ADV. This article also describes guidance the adopting release provides regarding compliance policies and procedures for the safekeeping of client assets. Except as otherwise described below, an adviser must comply with the amendments beginning on March 12, 2010. The SEC also issued a companion release providing interpretive guidance for independent public accountants in performing