[Federal Register Volume 87, Number 105 (Wednesday, June 1, 2022)]
[Notices]
[Pages 33219-33220]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-11663]


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SECURITIES AND EXCHANGE COMMISSION

[SEC File No. 270-217, OMB Control No. 3235-0241]


Proposed Collection; Comment Request; Extension: Rule 206(4)-2

Upon Written Request, Copies Available From: Securities and Exchange 
Commission, Office of FOIA Services, 100 F Street NE, Washington, DC 
20549-2736

    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 at 
least quarterly, identifying the amount of funds and of each security 
in the account at the end of the period and setting forth all 
transactions in the account during that period.\4\ The client

[[Page 33220]]

funds and securities of which an adviser has custody must 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.\5\ 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 written 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'').\6\
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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).
    \5\ Rule 206(4)-2(a)(4).
    \6\ 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 
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.\7\ The rule also provides an exception to the surprise 
examination requirement for advisers that have custody solely because 
they have authority to deduct advisory fees from client accounts,\8\ 
and advisers that have custody solely because a related person holds 
the adviser's client assets (or has any authority to obtain possession 
of them) and the related person is operationally independent of the 
adviser.\9\
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    \7\ Rule 206(4)-2(b)(4).
    \8\ Rule 206(4)-2(b)(3).
    \9\ Rule 206(4)-2 (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 8,057 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 0.00524 hour per response. The annual aggregate burden for all 
respondents to the requirements of rule 206(4)-2 is estimated to be 
288,202 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 Commission, including whether the information 
shall have practical utility; (b) the accuracy of the Commission's 
estimates of the burden of the proposed collection of information; (c) 
ways to enhance the quality, utility, and clarity of the information 
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 by August 1, 2022.
    Please direct your written comments to David Bottom, Director/Chief 
Information Officer, Securities and Exchange Commission, c/o John 
Pezzullo, 100 F Street NE, Washington, DC 20549; or send an email to: 
[email protected].

    Dated: May 25, 2022
J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2022-11663 Filed 5-31-22; 8:45 am]
BILLING CODE 8011-01-P


