Saturday, July 16, 2011

California Invites Comments on IA Custody Pre-Proposed Rule

Interested persons may submit written comments electronically to about a pre-proposed rule by the California Department of Corporations pertaining to safekeeping requirements for investment advisers having custody of their clients' funds or securities. The pre-proposed rule incorporates changes under federal law such as the SEC's definition of "custody," as well as NASAA's proposed Model Rule but significantly differs from the NASAA Model Rule by allowing advisers to pooled investment vehicles that select the independent gatekeeper option under subsection (a)(5) to be subject to the same "more relaxed, less burdensome" account statement requirements as advisers that select the audit exception under subsection (b)(4). The NASAA Model Rule, on the other hand, only allows the more relaxed, less burdensome account statement requirements for advisers to pooled investment vehicles that select the audit exception. Another difference between the two rules is that the California rule relaxes some of the NASAA Model Rule's alternative account statement requirements.

NOTE: This invitation for comments is not an official proposed rulemaking. Interested persons will again have an opportunity to comment when the rule is officially proposed for adoption.

Please contact Ivan V. Griswold, Corporations Counsel, at (415) 972-8937 or at with any questions about this invitation for comments.