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SEC Provides Guidance for RIAs Who Violate Custody Rule Amid COVID-19

Apr 28, 2020

Following the recent news that the staff of the SEC’s Division of Investment Management has looked into requests from registered investment advisers (RIAs) unable to meet certain requirements surrounding the Custody rule 206(4)-2(b)(4) due to the COVID-19 pandemic, the Division has issued further guidance.the Division said in Q&A released on April 27 that it would not recommend enforcement action against any RIAs who violate rule 206(4)-2 against an adviser that is relying on rule 206(4)-2(b)(4) and that reasonably believed that the pool's audited financial statements would be distributed within 120 days, 180 days (in the case of funds of funds), or 260 days (in the case of “top tier” pooled investment vehicles investing in one or more funds of funds), but failed to have them distributed in time under certain unforeseeable circumstances.

“We had seen similar guidance on the surprise count provisions of the Custody Rule and had hoped to see the SEC update the Q&A to the custody rule to further assist the advisers who have been delayed in compliance due to the COVID-19 pandemic,” said EisnerAmper’s Peter Cogan, Managing Partner, Financial Services.  “Similar to the surprise count, we have suggested that advisers who find themselves in this position should discuss their approach with their compliance team and legal counsel and should still consider communication with their investors so that they are aware of their plans for delayed compliance.”

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Elana Margulies-Snyderman

Elana Margulies-Snyderman is an investment industry reporter and writer who develops articles, opinion pieces and original research designed to help illuminate the most challenging issues confronting fund managers and executives.

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