On July 30, the Securities and Exchange Commission (SEC) announced new investor protection rules requiring broker-dealers that have custody of customer securities and funds to file an annual report attesting to their compliance with the broker-dealer financial responsibility rules, as well as a quarterly report (Form Custody) discussing their custody practices. Firms that do not have custody are required to file an exemption report as well as the new Form Custody. In a public statement praising the new rules, SEC Commissioner Luis A. Aguilar stated, "These amendments, in conjunction with the 2009 rules regarding the custody practices of investment advisers, are designed to create a framework to ensure that investor assets are safely held. This framework is critical to cultivating early detection and to preventing the type of fraud Madoff perpetuated."
The new rules will increase the reporting requirements of broker-dealers and provide an enhanced role for independent public accountants, who must review the new filings and prepare reports stating the accountant's opinion with respect to certain statements.
Annual Compliance Report
Each broker-dealer that has custody of customer assets must file a "compliance report" with the SEC verifying that the firm is adhering to the broker-dealer "financial responsibility rules," which require a broker-dealer to maintain a certain level of net capital, protect customer assets it holds and periodically send account statements to customers.  The report must certify that the broker-dealer has effective internal controls to ensure compliance with the financial responsibility rules. According to Commissioner Aguilar, the compliance report "will enhance early detection of misappropriated or lost assets, and identify weaknesses in a broker-dealer's internal controls that could jeopardize the safety of customer assets." Specifically, the compliance report must contain statements as to whether: