The SEC approved the issuance of new rules to stregthen the investment advisor custody requirements. In remarks at the open meeting, Chairman Mary Schapiro said the action was in response to major investment scams, including the alleged Bernard Madoff Ponzi scheme. The propsal wuld add a requirement that all registered advisors with custody of client assets must undergo a “surprise” examination by an independent public accountant. Investment advisors whose client assets are not held by a firm independent of the advisor would be required to obtain a written report from an accountant registered with the Public Accounting Oversight Board about the advisor’s controls.

Ms. Schapiro said that approximately 9,600 registered investment advisors have custody of client assets in one form or another. They either control the assets directly or through an affiliate. Given investors’ concerns about the safety of these assets, the chairman said the SEC’s proposal would substantially increase the controls that apply to investment advisors that maintain custody of client assets.

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