Separately Managed Accounts – SEC Resolves One "Inadvertent Custody" Ambiguity

On June 5, 2018, the SEC's Division of Investment Management supplemented its Staff Responses to Questions About the Custody Rule to respond to a significant ambiguity in its prior custody guidance for investment advisers to separately managed accounts (each an "SMA"). Specifically, in its response to new Question II.11 (the "Response"), the SEC staff clarified that, when an adviser does not have a copy of a client's custody agreement and does not know, or have reason to know, whether the agreement would give the adviser inadvertent custody, the Division would not recommend enforcement under Rule 206(4)-2 of the Advisers Act (the "Custody Rule"), provided the adviser did not recommend, request or require a client engage the client's custodian.