The SEC released a draft of proposed changes regarding “Custody of Funds or Securities of Clients by Investment Advisers” (File No. S7-09-09), calling for more oversight and controls over investment advisers or related persons who have custody of client funds or securities along with performing custodial duties and operations.
In short, the proposed changes will possibly require a “surprise examination” and an “internal control report” on these very entities that have custody of client funds or securities along with performing custodial duties and operations.
The proposed control objectives are as follows:
• Physical securities are safeguarded from loss or misappropriation;
• Cash and security positions are reconciled accurately and on a timely basis between the custodian and depositories, and between the custodian and accounting systems;
• Client-initiated trades are properly authorized and recorded completely and accurately in the client account;
• Securities income and corporate action transactions are processed to client accounts in an accurate and timely manner;
• Net settlement procedures for delivery and receive transactions are performed accurately;
• Documentation for the opening of accounts is received and authenticated, and established completely and accurately on the applicable system; and
• Market values of securities obtained from various outside pricing sources have been recorded accurately in client accounts.
If you want to learn more about these proposed changes and would like to receive a sample SAS 70 Type II report, then visit the official SAS 70 Resource Guide at sas70.us.com.