Practice question, Custody
Identify every arrangement that may give you custody of client funds or securities, name the qualified custodians, and show the custodian statements and any surprise examination documentation.
Taft practice question: not an official regulator question. SEC Division of Examinations, United States (federal). For SEC-registered investment advisers. Evidence category: Custody records.
Not legal advice. A practice prompt for rehearsing how your team explains its controls and evidence. No scoring, no model answer, no implication that a regulator will ask these words.
Authored by Taft. Last checked 2026-11-09. All questions.
Why it is relevant
The typical initial request list includes custodian identification, surprise examination documentation and custodial confirmation of positions, and the 2027 priorities name custody among the compliance program components reviewed.
Sources: [1] Attachment, Custody, [2] Section I.B, Compliance Programs
Evidence to locate
Suggested, not mandatory. A regulator's actual request list governs.
Engagement letters, client account lists and the accountant's reports and recommendations from any surprise examination.
Sources: [1] Attachment, Custody
Follow-up prompts
Which arrangement was hardest to classify, and how was the decision documented?
Applicability
- Applies to
- Advisers registered or required to be registered with the SEC that have, or may have, custody.
- Does not apply to
- Not stated.
Cite
Cite the official source first. Then: Taft Compliance Group, Exam-prep toolkit (draft), question q-custody-arrangements, https://taftcompliance.com/resources/exam-prep-toolkit/questions/q-custody-arrangements, last checked 2026-11-09.
Sources
U.S. Securities and Exchange Commission, Division of Examinations, Risk Alert: Investment Advisers: Assessing Risks, Scoping Examinations, and Requesting Documents (staff statement). regulator guidance. Attachment, Typical Initial Information Examiners Request of Investment Advisers: Conflicts of Interest and Insider Trading; Marketing and Advertising; Custody.
https://www.sec.gov/files/risk-alert-ia-risk-and-requesting-documents-090623.pdf
Checked 2026-11-09; published 2023-09-06.
Supporting passage
Code of Ethics attestations. Exemptions from Code of Ethics for supervised persons. Reports of securities transactions reported by access persons. Fee splitting or revenue sharing arrangements. Testimonials and endorsements, including payments made and compensation received. Third-party ratings and rankings. Custodian identification and contact information for entities that maintain custody of client assets. Surprise examination documentation, such as engagement letters, client account lists, and reports, results, and recommendations. Auditor engagement letters, opinions, and findings. Custodial confirmation of positions for specific clients.
U.S. Securities and Exchange Commission, Division of Examinations, Fiscal Year 2027 Examination Priorities (staff statement). regulator guidance. Section I.B, Compliance Programs, page 6.
https://www.sec.gov/files/2027-exam-priorities.pdf
Checked 2026-11-09.
Supporting passage
The Division's evaluation of compliance program effectiveness is a critical element of the examination process. The Division will review key components of an adviser's compliance program that address areas of its business and operations such as marketing, valuation, trading, portfolio management, disclosure and filings, and custody, as appropriate for each specific examination. Examinations will also typically analyze an adviser's annual compliance review. The Division continues to prioritize review of whether policies and procedures are reasonably designed to address conflicts of interest, in light of a firm's particular operations, and to prevent advisers from placing their interests ahead of clients' interests. Examinations will focus on whether the policies and procedures are implemented, and whether disclosures address fee-related conflicts of interest, particularly those arising from account and product compensation structures.
Changes to this question
No released changes.