The regulatory scrutiny of custody issues has intensified in recent years due to high-profile scandals involving investment advisers, and the SEC is spending more time on the review of custody issues during examinations of registered investment advisers, including hedge fund managers.  On January 31, 2012, the SEC hosted its annual “Compliance Outreach Program National Seminar” (Seminar).  The Seminar included five sessions.  The fifth session – entitled “Safety and Soundness of Client Assets/Custody” (Session) – discussed the impact of Rule 206(4)-2 under the Advisers Act (Custody Rule) on registered investment advisers, such as hedge fund managers.  The Session began with a discussion of the Custody Rule’s requirements, including a discussion of the 2009 amendments to the Custody Rule.  See “How Should Hedge Fund Managers Revise Their Compliance Policies and Procedures in Light of Amendments to the Custody Rule?,” Hedge Fund Law Report, Vol. 3, No. 3 (Jan. 20, 2010).  The Session also discussed the SEC’s approach to reviewing custody issues during examinations of investment advisers.  Specifically, the Session explained what an investment adviser should expect with respect to the review of custody issues during an SEC examination and how to prepare for custody reviews in the course of examinations.  This article discusses the foregoing topics and the other key takeaways from the Session.