
[Federal Register Volume 77, Number 167 (Tuesday, August 28, 2012)]
[Notices]
[Pages 52074-52075]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2012-21115]


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SECURITIES AND EXCHANGE COMMISSION


Proposed Collection; Comment Request

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of Investor Education and Advocacy, Washington, DC 
20549-0213

Extension:
    Rule 206(4)-2; SEC File No. 270-217; OMB Control No. 3235-0241.

    Notice is hereby given that pursuant to the Paperwork Reduction 
Act of 1995 (44 U.S.C. 3501 et seq.), the Securities and Exchange 
Commission (``Commission'') is soliciting comments on the collection 
of information summarized below. The Commission plans to submit this 
collection of information to the Office of Management and Budget 
(``OMB'') for extension and approval.
    Rule 206(4)-2 (17 CFR 275.206(4)-2) under the Investment 
Advisers Act of 1940 (15 U.S.C. 80b-1 et seq.) governs the custody 
of funds or securities of clients by Commission-registered 
investment advisers. Rule 206(4)-2 requires each registered 
investment adviser that has custody of client funds or securities to 
maintain those client funds or securities with a broker-dealer, bank 
or other ``qualified custodian.'' \1\ The rule requires the adviser 
to promptly notify clients as to the place and manner of custody, 
after opening an account for the client and following any 
changes.\2\ If an adviser sends account statements to its clients, 
it must insert a legend in the notice and in subsequent account 
statements sent to those clients urging them to compare the account 
statements from the custodian with those from the adviser.\3\ The 
adviser also must have a reasonable basis, after due inquiry, for 
believing that the qualified custodian maintaining client funds and 
securities sends account statements directly to the advisory 
clients, and undergo an annual surprise examination by an 
independent public accountant to verify client assets pursuant to a 
written agreement with the accountant that specifies certain 
duties.\4\ Unless client assets are maintained by an independent 
custodian (i.e., a custodian that is not the adviser itself or a 
related person), the adviser also is required to obtain or receive a 
report of the internal controls relating to the custody of those 
assets from an independent public accountant that is registered with 
and subject to regular inspection by the Public Company Accounting 
Oversight Board (``PCAOB'').\5\
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    \1\ Rule 206(4)-2(a)(1).
    \2\ Rule 206(4)-2(a)(2).
    \3\ Rule 206(4)-2(a)(2).
    \4\ Rule 206(4)-2(a)(3), (4).
    \5\ Rule 206(4)-2(a)(6).
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    The rule exempts advisers from the rule with respect to clients 
that are registered investment companies. Advisers to limited

[[Page 52075]]

partnerships, limited liability companies and other pooled 
investment vehicles are excepted from the account statement delivery 
and deemed to comply with the annual surprise examination 
requirement if the limited partnerships, limited liability companies 
or pooled investment vehicles are subject to annual audit by an 
independent public accountant registered with, and subject to 
regular inspection by the PCAOB, and the audited financial 
statements are distributed to investors in the pools.\6\ The rule 
also provides an exception to the surprise examination requirement 
for advisers that have custody because they have authority to deduct 
advisory fees from client accounts and advisers that have custody 
solely because a related person holds the adviser's client assets 
and the related person is operationally independent of the 
adviser.\7\
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    \6\ Rule 206(4)-2(b)(4).
    \7\ Rule 206(4)-2(b)(3), (b)(6).
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    Advisory clients use this information to confirm proper handling 
of their accounts. The Commission's staff uses the information 
obtained through this collection in its enforcement, regulatory and 
examination programs. Without the information collected under the 
rule, the Commission would be less efficient and effective in its 
programs and clients would not have information valuable for 
monitoring an adviser's handling of their accounts.
    The respondents to this information collection are investment 
advisers registered with the Commission and have custody of clients' 
funds or securities. We estimate that 4,763 advisers would be 
subject to the information collection burden under rule 206(4)-2. 
The number of responses under rule 206(4)-2 will vary considerably 
depending on the number of clients for which an adviser has custody 
of funds or securities, and the number of investors in pooled 
investment vehicles that the adviser manages. It is estimated that 
the average number of responses annually for each respondent would 
be 6,830, and an average time of 0.01593hour per response. The 
annual aggregate burden for all respondents to the requirements of 
rule 206(4)-2 is estimated to be 518,275 hours.
    The estimated average burden hours are made solely for purposes 
of the Paperwork Reduction Act and are not derived from a 
comprehensive or even representative survey or study of the cost of 
Commission rules and forms.
    Written comments are invited on: (a) Whether the proposed 
collection of information is necessary for the proper performance of 
the functions of the agency, including whether the information shall 
have practical utility; (b) the accuracy of the agency's estimate of 
the burden of the proposed collection of information; (c) ways to 
enhance the quality, utility, and clarity of the information to be 
collected; and (d) ways to minimize the burden of the collection of 
information on respondents, including through the use of automated 
collection techniques or other forms of information technology. 
Consideration will be given to comments and suggestions submitted in 
writing within 60 days of this publication.
    Please direct your written comments to Thomas Bayer, Director/
Chief Information Officer, Securities and Exchange Commission, c/o 
Remi Pavlik-Simon, 6432 General Green Way, Alexandria, VA 22312; or 
send an email to: PRA_Mailbox@sec.gov.

    Dated: August 22, 2012.
Kevin M. O'Neill,
Deputy Secretary.
[FR Doc. 2012-21115 Filed 8-27-12; 8:45 am]
BILLING CODE 8011-01-P


