The Custody Rule

Blog Post The Custody Rule

The Custody Rule

May 2018

The majority of advisers to Pooled Investment Vehicles that operate on a calendar year recently passed a significant deadline on April 30.


The Custody Rule (Rule 206(4)-2) requires that advisers custody client funds and securities with a qualified custodian. Advisers must notify their clients that they are doing so, identify the custodian, and ensure that the custodian is sending at least quarterly statements to clients. They may be subject to verification that the funds and securities are held in custody by having an independent, surprise examination conducted annually by a Public Company Accounting Oversight Board (PCAOB)-registered public accounting firm.


The Securities and Exchange Commission (SEC), however, has provided an exemption to Advisers to Pooled Investment Vehicles. This exemption allows certain advisors to annually distribute audited financial statements that have been prepared in accordance with generally accepted accounting principles (GAAP) audited by an independent public accounting firm that is registered with, and inspected by, the PCAOB within 120 days of the close of the adviser’s year end.


If you have missed the 4/30 deadline, you still have options. Read the following article to learn more about the Custody Rule, the surprise exam requirements, and what to do if you haven’t yet met your obligations:


The Custody Rule and Surprise Exam Requirements


If you have any questions or are in need of a surprise examination, please contact Stephen Vlasak.