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  • Writer's pictureDeborah

Released on February 15 by the Securities and Exchange Commission (SEC), the Proposed rule amends rule 206(4)-2 under the Investment Advisers Act of 1940 by strengthening the requirements pertaining to the safeguarding of clients assets.

Taking into account the ways technology, advisory services, and custodial practices had evolved over the years; the Proposed rule “is designed to protect these assets from the adviser’s own insolvency or bankruptcy, and from the assets being lost, misused, stolen, or misappropriated.

The Proposed rule, if adopted, would amongst others:

  • Expand the scope of the current custody rule beyond client funds and securities to include any client assets of which an adviser has custody (i.e. funds, securities, or other positions, assets held in a client’s account).

  • Require qualified custodian to have “possession or control” of advisory client assets.

  • Require advisers to have written agreements with qualified custodians that include standards custodial protections (assets segregations…).

  • Expand the availability of the current custody rule’s audit provision as a means of satisfying the surprise examination requirement.

  • Amend the record keeping rule by requiring more detailed records of trade and transaction activity and position information for each client account.

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