Custody Rules! Get in the Know and Add Value for Your Clients

In the wake of numerous high-profile scandals involving the misappropriation of client assets, the U.S. Securities and Exchange Commission (the SEC) has taken significant steps to enhance the safekeeping of client funds and securities by investment advisers, including adopting Rule 206(4)-2 under the Investment Advisers Act of 1940 (the “Advisers Act”), otherwise known as the Custody Rule. Among other things, the Custody Rule mandates that registered investment advisers with custody of client funds and securities adopt enumerated measures designed to facilitate the tracking and protection of client assets. As a result, attorneys advising investment adviser clients must understand the intricacies of the Custody Rule to help their clients mitigate regulatory risk.

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Related Content

• Regulation of Custodial Practices Under the Investment Advisers Act of 1940, Rule 206(4)-2
  Review this comprehensive outline of custodial practice regulation from Robert E. Plaze, former deputy director of the SEC’s division of investment management and current partner at Proskauer Rose LLP.
• Investment Adviser Compliance Policies and Procedures Checklist
  See highlights in this checklist of how custody plays a significant role in an investment adviser’s overall compliance program—a handy way to review your (or your clients’) compliance policies for completeness.
• Custody Agreement (Hedge Fund) (Custodian)
  Consider the provisions of this form agreement, containing valuable guidance and drafting notes to assist you in understanding and negotiating important terms when a form custody agreement is not already provided by a fund custodian (or even when one is).

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