Document ID: SEC-2019-0422-0003
Agency: sec
Document Type: Notice
Title: Agency Information Collection Activities; Proposals, Submissions, and Approvals
Posted Date: 2022-08-05T04:00Z

[Federal Register Volume 87, Number 150 (Friday, August 5, 2022)]
[Notices]
[Pages 48049-48050]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-16848]

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SECURITIES AND EXCHANGE COMMISSION

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

Submission for OMB Review; 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'') has submitted to the Office of Management 
and Budget (``OMB'') a request for extension and revision of the 
previously approved collection of information discussed below.
    The title for the collection of information is ``Rule 206(4)-2 
under the Investment Advisers Act of 1940--Custody of Funds or 
Securities of Clients by Investment Advisers.'' 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 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 these collections 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.
    This collection of information is found at 17 CFR 275.206(4)-2 and 
is mandatory. Responses to the collection of information are not kept 
confidential. Commission-registered investment advisers are required to 
maintain and preserve certain information required under rule 206(4)-2 
for five years. The long-term retention of these records is necessary 
for the Commission's examination program to ascertain compliance with 
the Investment Advisers Act.
    The estimated average burden hours are made solely for the purposes 
of Paperwork Reduction Act and are not derived from a comprehensive or 
even representative survey or study of the cost of Commission rules and 
forms. An

[[Page 48050]]

agency may not conduct or sponsor, and a person is not required to 
respond to, a collection of information unless it displays a currently 
valid control number.
    The public may view background documentation for this information 
collection at the following website: www.reginfo.gov. Find this 
particular information collection by selecting ``Currently under 30-day 
Review--Open for Public Comments'' or by using the search function. 
Written comments and recommendations for the proposed information 
collection should be sent within 30 days of publication of this notice 
by September 6, 2022.
    To (i) [email protected] and (ii) David 
Bottom, Director/Chief Information Officer, Securities and Exchange 
Commission, c/o John Pezzullo, 100 F Street NE, Washington, DC 20549, 
or by sending an email to: [email protected].

    Date: August 1, 2022.
J. Matthew DeLesDernier,
Deputy Secretary.
[FR Doc. 2022-16848 Filed 8-4-22; 8:45 am]
BILLING CODE 8011-01-P