SEC Proposes Enhanced Safeguarding Rule for Registered Investment Advisers

The U.S. Securities and Exchange Commission, SEC, has published a press statement to announce an upcoming consultation on proposed enhancements to its client asset custody rule to provide further, more far-reaching protection to investors as regards the handling of THEIR investments.
Specifically, the Commission proposes to revise the current custody rule under 17 CFR Part 206, § 275.206(4)-2 by formally re-designating this rule as new rule § 275.223-1 and by – among other things –
– expanding the scope of the current custody rule to cover ALL client assets – including „funds, securities, or other positions“- that are held in client accounts and in the possession of an investment adviser or that an investment adviser has authority to obtain;
– requiring the custodian of client funds to have (physical) „possession or control“ over such funds, securities, and other positions;
– enhancing the requirements upon institutions that may serve as custodians (qualified custodian such as banks or certain broker-dealers);
– expanding the scope of securities that are exempt from the obligation to be held with qualified custodians, e.g. certain privately offered securities provided that certain conditions are met by the investment adviser;
– requiring the investment adviser to enter into an agreement with the custodian to ascertain a set of minimum protection of client assets;
– requiring investment advisers with custody over client assets to
– clearly segregate those assets from his own or from those of related persons;
– register the assets in the client’s name; and
– not use any such assets for purposes other than those agreed upon with the client.
– requiring the investment adviser to keep more detailed records of client assets of which it has custody including the following:
– client account identification,
– custodian identification,
– information on the authorization of the investment adviser,
– account statements sent to clients, or
– transaction and position information.
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As these are only the key proposed changes to the „custody rule“, please refer to the original publication for more detailed, comprehensive information.