As effects of the COVID-19 pandemic continue to impact global securities markets, regulatory bodies are taking steps to mitigate risks for market participants. Recently, the SEC updated a set of frequently asked questions on custody rule requirements in response to the pandemic. Information on the updates is as follows:
- In the past, the SEC stated that securities received inadvertently from a client must not be forwarded to a custodian, but instead, returned to sender within three business days. Now, if an adviser does not have access to a physical office location or cannot receive mail due to COVID-19 restrictions, the mail is not considered to be received. Once an adviser has access to mail, the securities must be returned to sender, as applicable.
- Firms subject to the surprise examination rule typically secure an independent public accountant to perform this service and file a certificate of accounting within 120 days of the chosen date. Under the SEC’s new guidance, this deadline may be extended by 45 days if the firm and independent public accountant experience delays due to COVID-19.
- It has been determined that, in some cases, physical certificates can be placed with a qualified custodian or replaced with similar securities in a manner that complies with the privately offered securities exception. The SEC will not recommend enforcement action for not maintaining certificates with a qualified custodian under COVID-19 circumstances if certain conditions are met.
WHAT DOES THIS MEAN FOR ME?
If your firm has been adversely affected by COVID-19 restrictions and cannot meet typical compliance standards for the custody rule, then you may take advantage of the SEC’s guidance, as needed. Fairview recommends against utilizing these expanded provisions unless necessary under COVID-19 restrictions. Reach out to us with questions about how the SEC’s new guidance may apply to your firm.