RIA Compliance Blog
On October 26, 2022, the Securities and Exchange Commission (“SEC”) proposed a rule that would prohibit investment advisers from using certain third party service providers without additional due diligence and monitoring.
The proposed rule provides an oversight framework for investment advisers designed to ensure that any “covered functions” outsourced to third parties are consistent with the adviser’s obligations to their clients. A “covered function” is a function or service that is necessary to provide investment advisory services in compliance with Federal securities laws, and if the service is not performed or is performed negligently, would be reasonably likely to cause a material negative impact on the adviser’s clients or advisory services.