March 12th Effective Date for Amended Custody RuleReady. Set. Go. |
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On December 30, 2009, the Securities and Exchange Commission (SEC) finalized the amendments to the custody requirements of Rule 206(4)-2 (the “Rule”), under the Investment Advisers Act of 1940. What do you need to do to prepare and comply now that the Rule has gone into effect as of March 12, 2010?
Three of the most common concerns facing organizations subject to the provisions of the Rule are:
- Engaging an Accounting Firm
Further clarification with the SEC has determined that investment advisers or their custodians need only to engage an accounting firm for their Internal Control Report (e.g. SAS 70) and Surprise Security Count prior to the commencement of the examinations, not by March 12, 2010, the Rule’s effective date.
- Duration and Additional Time for New SAS 70 Readiness
Organizations that have never undergone a SAS 70 over their custody operations are anxious to start and many would prefer a period of readiness prior to starting the SAS 70 examination timeframe. The SEC’s FAQ I.8 clarifies that the SAS 70 does not have to cover any period prior to March 12, 2010 and hence a report covering a period less than six months and issued prior to September 12, 2010 is acceptable. However there was still some uncertainty as the Rule and FAQ do not require a specific start date or minimum period of coverage. Further clarification with the SEC has determined that the SAS 70 coverage period is up to the discretion of the investment adviser, their related custodian and the accounting firm issuing the SAS 70 and that less than six months, with a minimum of three months is acceptable. This will allow for additional time to prepare for the SAS 70 examination.
- Supplementing Currently Performed SAS 70s
Organizations that already undergo an annual custody SAS 70 typically have a pre-established reporting cycle and are concerned how to approach the requirement to have an enhanced report meeting all of the Rule requirements by September 12, 2010. The SEC’s FAQ I.9 clarifies that these organizations need not alter their reporting cycle. Further clarification with the SEC has determined that these organizations can continue with their current report dates and do not have to prepare any supplemental reports to meet the full Rule requirement, providing that their 2010 report, when issued, will meet all of the Rule requirements.
The implications of the finalized amendments to the Rule are far-reaching and include a number of key provisions asset management professionals need to know. With this in mind, Deloitte has published a summary document highlighting key elements of the Rule and a related Dbriefs Webcast to assist you with understanding these implications.
The SEC is developing answers to frequently asked questions on an ongoing basis and posting the answers on their Web site. Deloitte is working closely with the SEC to understand new developments and to raise additional questions as we encounter them. Stay tuned for additional communications as Deloitte continues to help you prepare for the new Rule. We also encourage you to contact us at usfsi@deloitte.com to further discuss what you can do now to get ready!
