Monday, March 4, 2013
The SEC issued a Risk Alert on Significant Deficiencies Involving Adviser Custody and Safety of Client Assets. It reports that the SEC's National Examination Program (NEP) "has observed widespread and varied non-compliance with elements of the custody rule," which is designed to protect advisory clients from the misuse or misappropriation of their funds and securities. According to the Alert,
The custody-related deficiencies NEP staff observed can be grouped into four categories: failure by an adviser to recognize that it has “custody” as defined under the custody rule; failures to comply with the rule’s “surprise exam” requirement; failures to comply with the “qualified custodian” requirements; and failures to comply with the audit approach for pooled investment vehicles.