What Is SEC Form N-17f-2?

SEC Form N-17f-2 is a filing with the Securities and Exchange Commission (SEC) that must be submitted by investment companies that have custody of securities or similar investments. The investment company is required to retain an independent public accountant to verify the company's securities and similar investments that are held by actual examination three times during each fiscal year.

Key Takeaways

  • SEC Form N-17f-2 is a regulatory document titled, Certificate of Accounting of Securities and Similar Investments in the Custody of Management Investment Companies.
  • This form must be completed and filed by investment companies that have custody of securities or similar investments on behalf of clients.
  • The form must be certified by an independent public accountant, who may be required to inspect the firm's securities positions three times per year.

Understanding SEC Form N-17f-2

SEC Form N-17f-2 is also known as "Certificate of Accounting of Securities and Similar Investments in the Custody of Management Investment Companies." It is required by Rule 17f-2 under the Investment Company Act of 1940. The purpose of this form is for the SEC to ensure that the certificate is properly attributed to the investment company and that the investment company's custodial accounts hold exactly the securities that are reported as held in customers' accounts.

The accountant involved must prepare a certificate stating that the examination has occurred with a description of the examination. Management signs the form and submits it to the SEC along with the independent accountant's attestation.

The accountant must also be an independent auditor, who is a certified public accountant (CPA) or chartered accountant (CA) who examines the financial records and business transactions of a company with which he is not affiliated. An independent auditor is typically used to avoid conflicts of interest and to ensure the integrity of performing an audit. Independent auditors are often used—or even mandated—to protect shareholders and potential investors from the occasional fraudulent or unrepresentative financial claims made by public companies. The use of independent auditors became more critical after the implosion of the dotcom bubble and the passage of the Sarbanes-Oxley Act (SOX) in 2002.

Key Subsections of Rule 17f-2

Rule 17f-2 requires that securities must be deposited by an investment company in the safekeeping of a bank or other company whose functions and physical facilities are supervised by a federal or state regulator. Such securities on deposit must be physically segregated at all times. However, securities that are collateralized, hypothecated, pledged, or placed in escrow for a loan, or securities in transit in connection with the sale, exchange, redemption or other transaction that results in the pending change of physical ownership do not have to be deposited for safekeeping by the investment company.

Another important subsection is the identification of the persons authorized to have access to the deposited securities. Rule 17f-2 also details the precise procedures to be followed for the deposit and withdrawal of securities. Finally, the rule stipulates that independent examinations by a public accountant are performed at least three times in a fiscal year, with at least two of them occurring without prior notice to the investment company.