SEC Brings Standalone Custody Rule Enforcement Action

Background:

• On August 1, 2025, the Securities and Exchange Commission (SEC) charged an investment adviser⁽¹⁾ for failing to conduct the required independent verification—commonly referred to as a surprise examination—on client accounts over which the firm had custody and substantial control.
  • The firm had maintained custody over these accounts for approximately six years without obtaining the mandatory surprise exam.
  • As a result, the SEC imposed a civil monetary penalty of $50,000.

Takeaways:

• Enforcement Without Investor Harm: This represents a standalone compliance enforcement action—there was no allegation of investor harm, underscoring the SEC’s emphasis on technical compliance even in the absence of misconduct or client loss.
• Custody Rule Priority: The SEC continues to view the Custody Rule as one of the most critical regulatory requirements for investment advisers. This action highlights the agency’s commitment to enforcing this rule as a cornerstone of investor protection.

_{(1) In the Matter of Munakata Associates LLC}