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SEC Rule 206(4)-2

Deems it fraudulent for investment advisers to have custordy of client funds or securities unless a qualified custodian maintains these in a separate accounts. Also stipulates that the client must be notified fo rthe custodian's details upon account opening or following any changes to this information.

Rule Overview

Jurisdiction: United States

Regulator: SEC

Topic: Custody

Overview
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The rule also requires the firm to have a reasonable basis for believing that the qualified custodian is sending account statements on at least a quarterly basis to the firm’s clients.

Also requires the independent verification by a public accountant of the existence of client funds and securities.

The independent verification must occur on at least an anual basis at a time “that is chosen by the accountant without prior notice or annoucnement to you and that is irregular from year to year.

Exceptions to this rule include those covering:

  • Shares of mutual funds
  • Some privately offered securities
  • Fee deduction
  • Limited partnerships subject to annual audit
  • Registered investment companies
  • Certain related persons
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