SEC Grants Sub-Advisers No-Action Relief from Custody Rule Audit Requirements

May 04, 2016

A U.S. Securities and Exchange Commission (SEC) no-action letter issued on April 25, 2016 provides relief from the annual surprise audit requirement of the “Custody Rule” for a registered investment adviser (RIA) participating in an investment advisory program where one or more affiliates act as primary adviser and qualified custodian to clients in the program.

In the no-action letter to the Investment Adviser Association (IAA), the staff of the SEC's Division of Investment Management (Staff) provides guidance concerning the independent verification requirement set forth in Rule 206(4)-2 under the Investment Advisers Act of 1940 (Custody Rule). Under the IAA No-Action Letter, to the extent that (among other things) the sub-adviser is deemed to have custody solely by virtue of its affiliate serving as qualified custodian, and the affiliated primary adviser complies with the Custody Rule’s relevant requirements, the sub-adviser is not required to undergo a separate surprise examination.

Read "SEC Grants Sub-Advisers No-Action Relief from Custody Rule Audit Requirements."

Read the extended Compliance Reporter version here.