Transcription of IM Guidance Update - SEC
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IM Guidance Update - SEC
IM Guidance UpdateFEBRUARY 2017 | No. 2017-01 INADVERTENT CUSTODY: ADVISORY CONTRACT VERSUS CUSTODIAL CONTRACT AUTHORITYThe staff of the Division of Investment Management has determined that under the Investment Advisers Act of 1940 custody rule, Rule 206(4)-2, an investment adviser may inadvertently have custody of client funds or securities because of provisions in a separate custodial agreement entered into between its advisory client and a qualified custodian. This Guidance Update discusses, among other things, some circumstances the staff has encountered where such inadvertent custody could staff cautions advisers to be aware that they may have custody due to the authority resulting from various agreements that may be in place in connection with relevant custodial and advisory agreements.
IM GUIDANCE UPDATE 2. The definition of custody turns on whether the adviser is permitted to “withdraw” client funds or securities “upon [the adviser’s] instruction to the qualified custodian.”
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