RIC Custody Requirements: ICA Section 17(f) and Related Rules

Overview

ICA Section 17(f) establishes the statutory requirements applicable to the custody of assets by SEC-registered investment companies. Custodial requirements also apply to BDCs pursuant to Section 58 of the Investment Company Act. Employees' security company may also be required to comply with Section 17(f) or obtain an exemption therefrom as a condition to obtaining a general exemption from registration under the Investment Company Act.

Each of the rules adopted under Section 17(f) provides specific requirements as to particular types of custody arrangements"

Rule 17f-1 specifies the requirements to maintain custody with a member of a national securities exchange.

Rule 17f-2 establishes safeguards for self-custody arrangements. The rule includes the following requirements: (i) the fund's directors must adopt a resolution designating a limited number of "access persons" who may have access to the fund's assets; (ii) the access persons (two or more of whom must act jointly when handling fund assets) must comply with certain recordkeeping requirements; and an independent public accountant must verify the fund's assets three times each year, and two of those examinations must be unscheduled.

Rule 17f-3 provides a limited exemption for petty cash accounts.

Rule 17f-4 specifies the conditions for the use of securities depositories.

Rule 17f-5 governs the custody of the assets with non-U.S. custodians. The fund or its foreign custody manager (as delegated by the fund's board) is permitted to use an "eligible fund custodian." subject to certain requirements. The foreign custody manager must monitor the performance of the contract and the eligible foreign custodian.

Rule 17f-6 permits RICs to maintain margin with FCMs in connection with CFTC-regulated transactions.

Rule 17f-7 sets requirements for maintaining the assets of a management RIC with a foreign securities depository.

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ICA Section 17 (Transactions of certain affiliated persons and underwriters; custody of securities)

 

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