SEC Considers Strengthening Custody Rules To Thwart Madoff-Like Schemes

SEC Considers Strengthening Custody Rules To Thwart Madoff-Like Schemes - 4/27/2009

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SEC Considers Strengthening Custody Rules To Thwart Madoff-Like Schemes, Surprise Examinations And Third-Party Compliance Audits To Be Proposed, Schapiro Says
Sara Hansard

InvestmentNews. April 27, 2009
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EXCERPT: The SEC will consider two proposals on custody rules as part of a package of initiatives aimed at ensuring the safekeeping of investor assets in the wake of the massive Ponzi scheme perpetrated by Bernard L. Madoff Securities LLC of New York, Securities and Exchange Commission Chairman Mary Schapiro said today. The SEC will propose “in short order” a proposal to strengthen the controls applicable to investment advisers with custody of client funds and securities, Ms. Schapiro said in prepared remarks to the Society of American Business Editors and Writers in Denver. “I anticipate that this proposal will include a consideration of ‘surprise’ examinations by a certified public accountant, and a requirement that investment advisers undergo third-party compliance audits,” she said. Another proposal would require that a senior officer from broker-dealers and investment advisers with custody certify that controls are in place to protect investor assets, Ms. Schapiro said. The two proposals are part of a package of initiatives that she said the SEC is developing to ensure safekeeping of investor assets. The Madoff firm, which had reported $17 billion in assets when the Ponzi scheme was made public, held custody of its own assets and was audited by a “storefront” accounting firm that was not registered with accounting regulators. In addition, the SEC in June will propose new money market fund regulation, Ms. Schapiro said. The proposal would govern “the credit quality, maturity and liquidity provisions that currently apply to money market funds. In addition, we are reviewing whether more fundamental changes are needed to protect investors from runs on the funds, including floating-rate net asset values.” Nearly $4 trillion is invested in money market funds, she said.

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