The SEC has proposed new rule changes under the Investment Advisers Act of 1940, under which investment advisers are regulated. The changes are designed to improve protections of investor assets managed by investment advisers registered with the SEC. Pursuant to the act, the proposed new safeguarding rule would also revise and renumber current custody rule 206(4)-2. Additionally, the SEC is proposing amendments to the recordkeeping rule under the Act and to Form ADV for investment adviser registration under the Act.
The proposed safeguarding rule’s enhanced protections would:
- require an adviser to enter into a written agreement with and obtain certain reasonable assurances from qualified custodians to guarantee that clients receive certain standard custodial protections when an adviser has custody of their assets. These protections are designed to ensure client assets are properly segregated and held in accounts designed to safeguard the assets in the event of a qualified custodian bankruptcy or other insolvency
- revise the current custody rule’s exception from the obligation to maintain client assets with a qualified custodian for some privately offered securities (for example, broadening the exception to include certain physical assets)
- maintain the current custody rule’s requirement for an adviser to undergo a surprise examination by an independent public accountant to verify client assets, but increase the availability of the current custody rule’s audit provision as a way to satisfy the surprise examination requirement
- modify the investment adviser recordkeeping rule to require advisers to maintain additional, more detailed records of trade and transaction activity and position information for each client account of which it has custody
- update Form ADV to both align advisers’ reporting obligations with the proposed safeguarding rule’s requirements and improve the accuracy of custody-related data available to the SEC, its staff, and the public
Further details on the adopted rules and amendments are available on the SEC’s Proposed Safeguarding Rule fact sheet available on sec.gov.
The comment period will be open for 60 days following publication of the rule proposal in the Federal Register. For more information, including instruction on how to submit feedback, see the Safeguarding Advisory Client Assets final rule on the SEC’s website.
SEC Proposes Enhanced Safeguarding Rule for Registered Investment Advisers (sec.gov)
Proposed Rule (sec.gov)
Fact Sheet (sec.gov)