2020 15.05

On April 27, 2020, the Division of Investment Management of the Securities and Exchange Commission (“SEC”) updated Staff Responses to Questions About the Custody Rule. Among other things, the updated Responses provide that, in light of the COVID-19 pandemic, the Staff would not recommend enforcement action for a violation of the Custody Rule (Rule 206(4)-2 of the Investment Advisers Act of 1940) against an investment adviser to a pooled investment vehicle where the adviser (i) is relying on the “audit provision” of the Rule to avoid a surprise audit and (ii) reasonably believed the pooled investment vehicle’s audited financial statements would be distributed within 120-days after the end of its fiscal year, but failed to have them distributed within the foregoing deadlines under “certain unforeseeable circumstances.”1 While not stated explicitly, “certain unforeseeable circumstances” relates to circumstances of the COVID-19 pandemic. Note, that the 120-day period is 180-days in the case of a fund of funds and 260-days in the case of a “top tier” pooled investment vehicle.

To read the entire text: https://www.wbny.com/siteFiles/31873/Client%20Alert%20-%20SEC%20Guidance.pdf