Advisers with Custody: Instructions for Sending Independent Accountant Notification of Material Discrepancies Found During Annual Surprise Examination

Registered investment advisers that have custody of client funds or securities must implement controls designed to protect client assets from loss or theft under Rule 206(4)-2, the custody rule under the Advisers Act. Registered advisers are required, with certain limited exceptions, to maintain client funds and securities in custodial accounts with qualified custodians. Qualified custodians include banks and insured savings associations, SEC-registered broker-dealers, CFTC-registered futures commission merchants, and certain foreign financial institutions. With limited exceptions, the adviser must have a reasonable basis for believing that the qualified custodian sends to each of its clients (or their designated representatives) at least quarterly account statements that identify the amount of funds and of each security in their accounts at the end of the period and set forth all transactions in the account during that period. If a client does not receive account statements directly from the qualified custodian, the adviser must send quarterly account statements to that client and undergo an annual surprise examination by an independent public accountant to verify all of the client's funds and securities of which the adviser has custody. Furthermore, if the independent public accountant finds any material discrepancies during the course of its examination, the accountant must notify the Commission within one business day of the finding, by means of a facsimile transmission or electronic mail, followed by first class mail (under Rule 206(4)-2(a)(3)(ii)(C)). These notifications should be directed to the attention of the U.S. Securities and Exchange Commission's Director of the Office of Compliance Inspections and Examinations, by care of the Office's Adviser Accountant Notification Liaison. Additional information regarding sending such discrepancy notices is provided below.

• First Class Mail: 100 F. Street, N.E., Mail Stop 7030, Attn: Adviser Accountant Notification Liaison, Washington D.C. 20549

• Facsimile Transmission: (202) 772-9176

• Email Transmission: IAAccountantNotificationLiaison@sec.gov

http://www.sec.gov/about/offices/ocie/awc-instructions.htm