NASAA proposes uniting custody and recordkeeping rules

NASAA is proposing to change a discrepancy in custody and recordkeeping rules.

Currently, NASAA rules deem custody to include possession of client funds or securities — unless the investment advisor receives them inadvertently and returns them to the sender promptly — within three business days.

Rule 102(e)(1)-1(B) and Rule USA 2002 411(f)-(1) further note that receipt of cheques drawn by clients and made payable to third parties will not meet the definition of custody if forwarded to the third party within three business days of receipt, provided the advisor maintains the records required under the recordkeeping rule.

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By contrast, both model recordkeeping rules provide that certain recordkeeping requirements related to inadvertent possession of client funds include situations in which the advisor held or obtained a client’s securities or funds and forwarded third party checks within 24 hours.

This same requirement in the custody rule is three days.

The proposed rule amendment resolves this discrepancy by changing the recordkeeping rule to conform to the requirements in the custody rule.

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The proposal would also more closely align the language of the two rules.

The comment period will remain open to February 12, 2013. Send comments to Greg Abram, Chair of the Investment Adviser Section Regulatory Policy and Review Project Group, Joseph Brady and A.Valerie Mirko, NASAA Legal Department.

Read the full proposal here.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.