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ARTICLE · 20 JANUARY 2010

SEC Adopts Custody Rule Changes For Investment Advisers

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The Securities and Exchange Commission (SEC) has issued amendments to Rule 206(4)-2, the custody rule under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and related amendments to Form ADV Part 1 and Rule 204-2 on recordkeeping.

United StatesFinance and Banking
Katten Muchin Rosenman LLP
Katten Muchin Rosenman LLP
Wendy Cohen
Wendy Cohen
Lance A. Zinman
Lance A. Zinman
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The Securities and Exchange Commission (SEC) has issued amendments to Rule 206(4)-2, the custody rule under the Investment Advisers Act of 1940, as amended (the "Advisers Act"), and related amendments to Form ADV Part 1 and Rule 204-2 on recordkeeping.1

Highly publicized losses by investors with Bernard Madoff and other advisers focused public attention on the need to strengthen requirements for safekeeping of client assets. The SEC noted in adopting these rule amendments that it has recently brought a number of enforcement actions against investment advisers involving misappropriation or misuse of such assets.

The purpose of the custody rule amendments is to impose additional controls on registered advisers that have access to client funds or securities. The primary tool for this is independent verification of the assets. The form of such verification varies depending on the nature of the adviser's access to or control over the assets.

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