Section 26-B175. CUSTODY OR POSSESSION OF CLIENTS FUNDS OR SECURITIES

 

175.1It shall constitute a dishonest practice within Section 207 (a)(9) of the Act (D.C. Offical Code § 31-5602.07; D.C. Register at 47 DCR 7851) for any investment adviser who has custody or possession of any funds or securities in which any client has any beneficial interest to do any act or take any action, directly or indirectly, with respect to any funds or securities, unless:

 

(a)The investment adviser notifies the Department in on Form ADV that the investment adviser has or may have custody. This notification may be given;

 

(b)The securities of each client are segregated, marked to identify the particular client who has the beneficial interest therein, and held in safekeeping in someplace reasonably free from risk of destruction or other loss;

 

(c)All such funds of such clients are deposited in one or more bank accounts which contain only clients' funds; such account or accounts are maintained in the name of the investment adviser as agent or trustee for such clients; and the investment adviser maintains a separate record for each such account which shows the name and address of the bank where such account is maintained, the dates and amounts of deposits in and withdrawals from such account, and the exact amount of each client's beneficial interest in this account;

 

(d)Immediately after accepting custody or possession of such funds or securities from any client, the investment adviser notifies the client in writing of the place and manner in which such funds and securities will be maintained, and, subsequently, if and when there is any change in the place or manner in which such funds or securities are being maintained, the investment adviser gives written notice thereof to the client;

 

(e)At least once every three (3) months, the investment adviser sends each such client an itemized statement showing the funds and securities in the investment adviser's custody or possession at the end of such period, and all debits, credits, and transactions, in such client's account during this period; and

 

(f)At least once every calendar year, an independent certified public accountant or an independent public accountant verifies all client funds and securities of clients by actual examination at a time chosen by the accountant without prior notice to the investment adviser.

 

175.2A report of such accountant, stating that he has made an examination of such funds and securities and describing the nature and extent of such examination, shall be filed with the Department promptly after each such examination.

 

175.3The accountant's report shall comply with the usual technical requirements as to dating, salutation, and manual signature and include in general terms an appropriate description of the scope of the physical examination of the securities and examination of the related books and records.

 

175.4This section shall not apply to an investment adviser also registered as a broker-dealer under Section 15 of the Securities Exchange Act of 1934 if the dealer is subject to and in compliance with Securities and Exchange Department Rule 15c3-1 under the Securities Exchange Act of 1934 or the dealer is a member of an exchange whose members are exempt from Rule 15c3-1, under the provisions of paragraph (b)(2) thereof, and the dealer is in compliance with all rules and settled practices of such exchange imposing requirements with respect to financial responsibility and the segregation of funds or securities carried for the account of customers.

 

source

Final Rulemaking published at 40 DCR 6732 (September 24, 1993); as amended by Emergency Rulemaking published at 48 DCR 1987 (March 2, 2001) [EXPIRED]; as amended by Final Rulemaking published at 48 DCR 4106 (May 11, 2001).