In response to the impact on investment advisers (“advisers”) of circumstances related to the coronavirus (“COVID-19”), on March 16, 2020, the staff (the “staff”) of the SEC’s Division of Investment Management issued a new frequently asked question (“FAQ”) on Item 1.F of Form ADV, Part 1A addressing advisers conducting investment advisory business from a temporary location1 and modified an existing FAQ on Rule 206(4)-2 under the Investment Advisers Act of 1940 (the “custody rule”) addressing advisers that inadvertently receive client assets at an office location that is temporarily closed.2 The following is a summary of the new FAQs.
New FAQ on Form ADV
In a new FAQ on Form ADV, the staff stated that it would not recommend enforcement action if an adviser does not update either Item 1.F or Section 1.F of Schedule D of Form ADV, Part 1A to list the teleworking addresses of employees who are temporarily teleworking as part of the adviser’s business continuity plan due to circumstances related to COVID-19.
Modified FAQ on the Custody Rule
In a modified FAQ on the custody rule, the staff stated that it would not consider an adviser to have custody of client assets that it inadvertently receives at an office location at which its personnel are unable to access mail or deliveries due to implementation of its business continuity plan in response to circumstances related to COVID-19. This limited relief applies only until the adviser’s personnel are able to access the mail or deliveries at that office location. The staff would otherwise require the adviser to return or forward the assets to the client within prescribed time periods (i.e., three or five business days depending on the assets received) to avoid having custody.
Seward & Kissel will continue to monitor regulatory developments related to COVID-19 that affect advisers. Please contact your primary attorney in Seward & Kissel’s investment management group or any of the attorneys listed below for assistance with regulatory matters related to the impacts of COVID-19.
Seward & Kissel has established a COVID-19 Resource Center on our web site to access all relevant alerts that we distribute.
1 See SEC Frequently Asked Questions on Form ADV and IARD available at https://www.sec.gov/divisions/investment/iard/iardfaq.shtml#item1f.
2 See SEC Staff Reponses to Questions About the Custody Rule available at https://www.sec.gov/divisions/investment/custody_faq_030510.htm.