SEC Seeks Input to Keep Investment Rules Intact
Published Date: 5/1/2025
Notice
Summary
The SEC wants to keep the rules that make sure investment advisers safely hold your money and tell you where it is. If advisers have your funds, they must keep them with trusted banks or brokers, send you clear statements, and get yearly surprise checks from independent accountants. This keeps your money safe without adding new costs or deadlines, just continuing the current protections.
Analyzed Economic Effects
5 provisions identified: 3 benefits, 1 costs, 1 mixed.
Custody With Qualified Custodians
If a registered investment adviser has custody of your funds or securities, the adviser must keep those client assets with a broker-dealer, bank, or other "qualified custodian" and promptly tell you where and how your assets are held. This rule is part of Rule 206(4)-2 under the Investment Advisers Act of 1940 and continues to apply while the SEC seeks OMB extension.
Annual Surprise Examination Requirement
Advisers that have custody of client funds or securities must have an annual surprise examination by an independent public accountant to verify client assets. If client assets are not maintained by an independent custodian, the adviser must obtain a written report of internal controls from an independent public accountant registered with and inspected by the PCAOB.
Compliance Burden Estimates for Advisers
The SEC estimates 9,210 registered investment advisers would be subject to this information collection. It estimates an average of 3,639 responses per respondent, 0.009426547 hours per response, and an annual aggregate burden of 315,925 hours. The agency is requesting OMB extension of the collection under the Paperwork Reduction Act.
Quarterly Custodian Statements
Advisers must have a reasonable basis to believe the qualified custodian sends account statements directly to clients at least quarterly that show the amount of funds, each security at period end, and all transactions during the period. If the adviser sends account statements, it must include a legend urging clients to compare the adviser's statements with the custodian's statements.
Exemptions for Certain Pools and Custody Situations
The rule exempts registered investment companies from these custody requirements. Limited partnerships, LLCs, and other pooled investment vehicles are excepted from account statement delivery and the annual surprise exam if the pools are audited annually by a PCAOB-registered accountant and audited financial statements are distributed to investors. There are also exceptions when custody exists only because the adviser deducts fees or because a related person (operationally independent) holds assets.
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