With a continued focus on investor protections in 2023, the United States Securities and Exchange Commission (“SEC”) announced new proposed rule changes to improve and enhance protections of investor assets managed by U.S. registered investment advisors (“RIA”).
If the Commission were to adopt this rule, the changes would amend and redesignate the SEC’s Custody rule, rule 206(4)-2, under the Investment Advisers Act of 1940. It would also amend certain recordkeeping and reporting obligations for RIAs.
The proposed rules would expand the current RIA custody rule to include any investor assets in the RIA’s possession or when an RIA has the authority to obtain possession of investor assets. The proposed rule would continue to entrust the safekeeping of assets to qualified custodians.
These changes are intended to ensure that qualified custodians provide a certain standard and level of custodial protection when maintaining an advisory client’s assets. Investor asset protection was listed as one of the SEC’s main exam priorities for 2023, so seeing these increased safeguards comes as no surprise.
The proposal would update and enhance certain recordkeeping requirements for advisers and certain Form ADV amendments.
