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On Monday, March 16, 2020, the Division of Investment Management of the U.S. Securities and Exchange Commission (the “SEC”) released guidance in the form of two “frequently asked questions” to address certain issues related to the Form ADV and the Custody Rule arising as a result of “work from home” arrangements implemented in the wake of the COVID-19 outbreak (the “FAQs”).

Form ADV

The SEC issued a new FAQ indicating that it would not take enforcement action against investment advisers who do not update either Item 1F of Part 1A or Section 1F of Schedule D of their Form ADV to reflect remote locations from which employees are temporarily working as additional offices “other than your principal office and place of business.” The relief is intended for remote locations from which employees are “teleworking” as part of the firm’s business continuity plan due to COVID-19. Investment advisers should take care to update their Form ADV to include locations from which employees work due to arrangements unrelated to the firm’s business continuity plan.

Custody Rule

Under the Custody Rule FAQ II.1, an investment adviser who inadvertently receives securities from a client must return securities to the sender within three or five business days (depending on the type of assets) to avoid being deemed to have custody of such funds and securities. In recognition that an investment adviser’s personnel may be unable to access mail or deliveries at an office location due to the firm’s business continuity plan in response to COVID-19, the SEC revised Custody Rule FAQ II.1 to indicate that, in such circumstances, the SEC would not consider an investment adviser to have received client assets at that office location until firm personnel are able to access the mail or deliveries at such location.

As of this date, the SEC has not issued targeted relief extending the requirement to provide audited financial statements within 120 days of a private fund’s fiscal year end for investment advisers that rely on the audited financials delivery requirement to comply with the Custody Rule. The SEC has previously issued more general guidance indicating that it would not recommend enforcement action for an adviser’s failure to distribute the fund’s audited financial statements within the 120-day deadline due to “certain unforeseeable circumstances.”[1] Until more current guidance is issued, investment advisers should assume the 120-day requirement remains in effect.

The Form ADV FAQ is available here and the Custody Rule FAQ is available here.

For more information on this topic, please contact your attorney at Tannenbaum Helpern or any member of Tannenbaum Helpern’s Investment Management practice.

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[1] See Question VI.9 of SEC Staff Responses to Questions About the Custody Rule, accessible here.

For more information on the topic discussed, contact:

• Wayne H. Davis  |  davis@thsh.com  |  212-508-6705
• Beth Smigel  |  smigel@thsh.com  |  212-702-3176