What is the custody rule in accounting?
A. The custody rule requires an adviser that has custody of client assets to maintain those assets with a “qualified custodian” such as a bank, broker-dealer, or futures commission merchant, and to have a reasonable basis for believing the custodian sends quarterly account statements directly to the clients.
Who is subject to the SEC Custody Rule?
 As revised, the Custody Rule generally requires advisers registered with the SEC: (i) to maintain client funds and securities with a qualified custodian; (ii) to have the qualified custodian send account statements directly to advisory clients;, (iii) to undergo an annual surprise examination by an independent …
What is custody RIA?
An RIA custodian is an institution that maintains the client assets and holdings of a registered investment advisor (RIA). Under the custody rule of the Investment Advisers Act of 1940, an independent bank or other qualified institution must be appointed to do this.
What is the US custody rule?
Under rule 206(4)-2 of the Advisers Act, otherwise known as the Custody Rule, it is a fraudulent practice for a registered investment adviser to have custody of client funds or securities, unless the adviser takes certain required steps to protect the assets.
Is Carta a custodian?
DBA Carta, Inc. No Custody of Securities. For avoidance of doubt, Carta does not act in the capacity of or provide services as a “qualified custodian” under SEC Rule 206(4)-2 under the Investment Advisers Act of 1940. Carta will not accept, or be responsible for, custody of any securities of Client.
What is a qualified custodian under the custody rule?
(1) Qualified custodian. A qualified custodian maintains those funds and securities: (i) In a separate account for each client under that client’s name; or. (ii) In accounts that contain only your clients’ funds and securities, under your name as agent or trustee for the clients.
Is an insurance company a qualified custodian?
Paragraph (c)(3) of the Custody Rule defines qualified custodian to include, among others, certain banks, registered broker-dealers and futures commission merchants and certain foreign financial institutions. That definition does not include insurance companies.
What is a surprise custody audit?
A surprise examination requires procedures such as, but not limited to, the examination of certain books and records that relate to the adviser’s custody and confirmation with both the qualified custodians and clients.
Do I need a custodian as an RIA?
For most independent RIAs who want to manage client portfolios (and be compensated for doing so), having an independent RIA custodian to work with is a necessity.
Can an RIA act as trustee?
If an RIA manages a family account and acts as trustee (or successor trustee), then the RIA has custody and needs comply with custody rule.
Who is a qualified custodian?
The term “qualified custodians” is a legal one, defined by the SEC as a bank, broker-dealer, futures commission merchant or other entity that maintains client funds and securities in specific ways. The federal regulator can designate an entity as a qualified custodian, while state-level regulators typically cannot.
How do you become a qualified custodian?
Qualified custodian means any Person that (i) is a bank, trust company or title insurance company subject to supervision and examination by any federal or state regulatory authority, (ii) is experienced in providing services of the type required to be performed by the Custodian under the Custodial and Paying Agency …
Can a ria comply with the SEC custody rule?
An RIA is not required to comply with the Custody Rule with respect to the account of an investment company that is registered under the Investment Company Act of 1940. The SEC made parallel amendments to the Form ADV to provide enhanced disclosure obligations concerning RIA custodial arrangements.
When does a RIA have a qualified custodian?
If an RIA has a related person qualified custodian whom it treats as operationally independent, under a parallel amendment to the RIA record keeping rule, the RIA must maintain a copy of a memorandum concerning the basis for its determination for five years. Custody limited to authority to make fee deduction withdrawals.
What is the custody rule under the Advisers Act?
The Commission is amending rule 206 (4)-2, the custody rule under the Advisers Act, to reflect modern custodial practices and clarify circumstances under which an adviser has custody of client assets. The amendments require advisers that have custody to maintain client funds and securities with a broker-dealer, bank, or other “qualified custodian.”
Can a RIA have custody of broker-dealer client funds?
Nevertheless, an RIA is not deemed to have custody as an RIA of broker-dealer client funds and securities with respect to which the entity does not provide investment advice. Indirect custody through a related person.