SEC proposes overhaul of ‘custody rule’ to include all assets as part of new ‘safeguarding rule’

The U.S. Securities and Exchange Commission (SEC) proposed broad changes to Advisers Act Rule 206(4)-2, popularly known as the “custody rule,” on February 15, 2023. The amendments would create a new Rule 223-1 that would broaden the prior custody rule into the “safeguarding rule” by expanding its coverage to all investment assets held in an advisory account and not merely client funds and securities. The expanded reach of the safeguarding rule would include certain assets not considered securities, such as cryptocurrencies and other crypto assets, real estate and other physical assets, financial contracts not subject to SEC regulation, and physical commodities.

In addition, the new safeguarding rule would expand the definition of custody to include the discretionary authority to trade and would require that qualified custodians not only maintain client assets, but have “possession or control” over such assets. The new safeguarding rule would also require investment advisers to enter into written agreements with qualified custodians with respect to certain assurances for client protections.




Authored by Madelyn Healy Joseph, Adam Brown, Parik Dasgupta, Henry Kahn, Bryan Ricapito, David Winter, and Kevin Lees.

Madelyn Healy Joseph
Washington, D.C.
Adam Brown
Northern Virginia
Bryan Ricapito
Washington, D.C.
Henry Kahn
Parikshit Dasgupta
New York
David Winter
Washington, D.C.
Kevin Lees
Corporate Funds Area Operations Manager
NW Washington, D.C.


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