SEC Extends No-Action Relief Under Advisers Act Custody Rule

The SEC's Division of Investment Management has issued a no-action letter concerning Investment Advisers Act Rule 206(4)-2 ("Custody of Funds or Securities of Clients by Investment Advisers").

The "Custody Rule" indirectly requires that auditors who perform certain functions for SEC-regulated entities be subject to regular inspection by the Public Company Accounting Oversight Board ("PCAOB"). According to the SEC letter, however, the PCAOB has yet to adopt a permanent program for such inspections. Therefore, the SEC previously issued a no-action letter stating that the SEC would not take action against an investment adviser who engaged an auditor to:

• perform a surprise examination of an investment adviser who maintained client funds or securities as a qualified custodian in connection with advisory services provided to clients;
• prepare an internal control report; or
• audit the financial statements of a pooled investment vehicle in connection with the annual audit provision, as long as such auditor was registered with the PCAOB and engaged to audit the financial statements of a broker or dealer.

This letter extends the previous no-action relief until December 31, 2016, or until an earlier date when the SEC approves a PCAOB-adopted permanent program.

See: SEC No-Action Letter.
See also: Lofchie's Guide to Hedge Fund Regulation Ownership and Custody Chapter.
Related news: IM No-Action Letter to ICI on Custody for 529 Plans (September 7, 2012); SEC Issues Risk Alert and Investor Bulletin on Investment Adviser Custody Rule; Summarizes Rule and Recent Violations (with Lofchie Comment) (March 4, 2013); SEC Issues Guidance Update Regarding IAA Custody Rule (with Lofchie Comment) (August 7, 2013).