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SEC (Securities and Exchange Commission) Risk Alert Identifies Common Adviser Custody Rule Deficiencies

On March 14, the Office of Compliance Inspections and Examinations of the Securities and Exchange Commission released a National Exam Program Risk Alert (Risk Alert). The Risk Alert discussed common deficiencies in respect of Rule 206(4)-2 under the Investment Advisers Act of 1940 (Custody Rule) that were reported by SEC staff in conducting investment adviser examinations.

In the Risk Alert, the SEC identified four primary categories of deficiencies:

Failure by an adviser to recognize situations in which it has custody under the Custody Rule;

Failure to meet the Custody Rules surprise examination requirements;

Failure to satisfy certain qualified custodian” requirements under the Custody Rule; and

Failure to properly engage independent auditors or otherwise comply with the requirements for audits

of pooled investment vehicles under the Custody Rule.

For additional details regarding the nature of the deficiencies commonly identified and SEC guidance on compliance with the Custody Rule, the Risk Alert may be found here.

©2017 Katten Muchin Rosenman LLP


About this Author

Peter J. Shea, Financial Services Practice, Katten Muchin New York Office

Peter J. Shea is a partner in Katten’s Financial Services practice. His clients range from NYSE-listed exchange traded funds to small private businesses as well as registered investment companies, hedge funds, investment advisors, broker-dealers and other financial institutions.

Peter has extensive experience as company counsel and fund counsel and has represented businesses in all phases of their development.

Peter is a former SEC Division of Enforcement Staff Attorney and a member of the ABA Business Law...