Custody Rule Violations | Will Clark Insights
VIGILANT INSIGHTS
Introduction
A New York Firm was charged $75,000 for allegedly violating custody and compliance rules in relation to their audited financial statements.
The SEC rules are aimed to provide investor protection, and one of the requirements is for timely audited financial statements to be provided.
Vigilant Director, Will Clark, CIPM, MBA, was quoted in a recent FundFire article discussing the relatively black and white nature of these types of charges.
What Happened?
- The former RIA had custody of three Private Fund assets.
- Audited financial statements for two of the Funds were provided 730 days late for 2021 and 365 days late for 2022.
- The Form ADV should have been updated after the fiscal year 2021 audit opinion for their third Private Fund, but they did not provide proper updates till months after the material changes occurred.
- While the compliance manual referenced meeting these compliance requirements, the policies were not reasonably designed or implemented.
Will Clark Insights
This regulatory climate has Firms repeatedly asking the SEC for clarification on the rules that are adopted. However, certain rules are more straightforward than others.
When it comes to the Custody Rule, Will mentions that the 120-day requirements for audited financials are black and white. If Firms do not deliver the audited financials after year-end, it is a clear violation.
Firms should ensure that they have the procedures and agreements in place that will allow their financial statements to be delivered on time.
Vigilant’s Conclusion
Firms should be sure that they are meeting reporting requirements to both the SEC and their investors.
With SEC rules that are more cut and dry, violations will be low-hanging fruit for SEC examiners.
Reach out to us today if you have any questions about regulatory deadlines and compliance/effective dates.