Compilation of Rules and Regulations of the State of Georgia › Department 590 - RULES OF OFFICE OF SECRETARY OF STATE › Chapter 590-4 - COMMISSIONER OF SECURITIES › Subject 590-4-4 - INVESTMENT ADVISERS AND REPRESENTATIVES › Rule 590-4-4-.20 - Custody Requirements for Investment Advisers

Current through Rules and Regulations filed through June 27, 2024
(1)
Safekeeping
				Required
. It is unlawful and deemed to be a fraudulent, deceptive,
				or manipulative act, practice, or course of business for an investment adviser,
				registered or required to be registered pursuant to Section
				 10-5-32, to have custody of client funds or securities unless:
(a)
Notice to
				Commissioner
. The investment adviser notifies the Commissioner
				promptly in writing that the investment adviser has or may have custody. Such
				notification is required to be given on Form ADV;
(b)
Qualified
				Custodian
. A qualified custodian maintains those funds and
				securities:
1. In a separate account for each
				client under that client's name; or
2. In accounts that contain only the
				investment adviser's clients' funds and securities, under the investment
				adviser's name as agent or trustee for the clients, or, in the case of a pooled
				investment vehicle that the investment adviser manages, in the name of the
				pooled investment vehicle.
(c)
Notice to
				Clients
. If an investment adviser opens an account with a
				qualified custodian on its client's behalf, under the client's name, under the
				name of the investment adviser as agent, or under the name of a pooled
				investment vehicle, the investment adviser must notify the client in writing of
				the qualified custodian's name, address, and the manner in which the funds or
				securities are maintained, promptly when the account is opened and following
				any changes to this information. If the investment adviser sends account
				statements to a client to which the investment adviser is required to provide
				this notice, the investment adviser must include in the notification provided
				to that client and in any subsequent account statement the investment adviser
				sends that client a statement urging the client to compare the account
				statements from the custodian with those from the investment adviser.
(d)
Account
				Statements
. The investment adviser has a reasonable basis, after
				due inquiry, for believing that the qualified custodian sends an account
				statement, at least quarterly, to each client for which it maintains funds or
				securities, 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.
(e)
Special Rule For Limited Partnerships And Limited Liability
				Companies
. If the investment adviser or a related person is a
				general partner of a limited partnership (or managing member of a limited
				liability company, or holds a comparable position for another type of pooled
				investment vehicle), the account statements required under paragraph (1)(d) of
				this Rule must be sent to each limited partner (member or other beneficial
				owner of such pooled investment vehicle).
(f)
Independent Verification
				(Surprise Examination)
.The client funds and securities of which
				the investment adviser has custody are verified by actual examination at least
				once during each calendar year, by an independent certified public accountant,
				pursuant to a written agreement between the investment adviser and the
				independent certified public accountant, at a time that is chosen by the
				independent certified public accountant without prior notice or announcement to
				the investment adviser and that is irregular from year to year. The written
				agreement must provide for the first examination to occur within six months of
				becoming subject to this paragraph, except that, if the investment adviser
				maintains client funds or securities pursuant to this Rule as a qualified
				custodian, the agreement must provide for the first examination to occur no
				later than six months after obtaining the internal control report. The written
				agreement must require the independent certified public accountant to:
1. File a certificate on Form ADV-E with the
				Commissioner within 60 days of the time chosen by the independent certified
				public accountant in subsection (1)(f) of this Rule, stating that it has
				examined the funds and securities and describing the nature and extent of the
				examination;
2. Upon finding any
				material discrepancies during the course of the examination, notify the
				Commissioner within one (1) business day of the finding, by means of a
				facsimile transmission or electronic mail, followed by first class mail,
				directed to the attention of the Commissioner; and
3. Upon resignation or dismissal from, or
				other termination of, the engagement, or upon removing itself or being removed
				from consideration for being reappointed, file within four (4) business days
				Form ADV-E accompanied by a statement that includes:
(i) The date of such resignation, dismissal,
				removal, or other termination, and the name, address, and contact information
				of the independent certified public accountant; and
(ii) An explanation of any problems relating
				to examination scope or procedure that contributed to such resignation,
				dismissal, removal, or other termination.
(g)
Investment Advisers Acting As
				Qualified Custodians
. If the investment adviser maintains, or if
				the investment adviser has custody because a related person maintains, client
				funds or securities pursuant to this Rule as a qualified custodian in
				connection with advisory services the investment adviser provides to clients:
1. The independent certified public
				accountant the investment adviser retains to perform the independent
				verification required by subsection (1)(f) of this Rule must be registered
				with, and subject to regular inspection as of the commencement of the
				professional engagement period, and as of each calendar year-end, by the Public
				Company Accounting Oversight Board in accordance with its rules; and
2. The investment adviser must obtain, or
				receive from its related person, within six months of becoming subject to this
				paragraph and thereafter no less frequently than once each calendar year a
				written internal control report prepared by an independent certified public
				accountant:
(i) The internal control report
				must include an opinion of an independent certified public accountant as to
				whether controls have been placed in operation as of a specific date, and are
				suitably designed and are operating effectively to meet control objectives
				relating to custodial services, including the safeguarding of funds and
				securities held by either the investment adviser or a related person on behalf
				of the investment advisers clients, during the year;
(ii) The independent certified public
				accountant must verify that the funds and securities are reconciled to a
				custodian other than the investment adviser or the investment advisers related
				person; and
(iii) The independent
				certified public accountant must be registered with, and subject to regular
				inspection as of the commencement of the professional engagement period, and as
				of each calendar year-end, by, the Public Company Accounting Oversight Board in
				accordance with its rules.
(h)
Independent
Representatives
. A client may designate
				an independent representative to receive, on his behalf, notices and account
				statements as required under paragraphs (1)(c) and (1)(d) of this
				rule.