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Proposed US SEC Custody Rule

An Overview of the Proposed Custody Rule 223-1 by the U. S. Securities and Exchange Commission For Registered Investment Advisers

The Proposed Custody Rule 223-1  is a proposed rule by the U.S. Securities and Exchange Commission (SEC) regarding the custody of assets, securities, or funds of clients by Investment advisers. The Securities and Exchange Commission (SEC) made this known to the public in a press release on February 15, 2023.

Proposed Custody Rule by US SEC

Aim of the Proposed Custody Rule:

The proposed custody rule aims to modernize the regulatory framework on how investment advisers offer their products and services to their clients. It  also proposes complementary refinements to how advisers report custody information on Form ADV. Also, it highlighted the books and records investment advisers  are required to keep that are designed to improve the SEC’s oversight and risk-assessment abilities.

The US SEC proposal maintains the core purpose of protecting client assets from loss, misuse, theft, or misappropriation by advisers. It also protects client’s assets from  insolvency or financial reverses of the adviser. In addition, it  maintains the Commission’s ability to pursue advisers for failing to properly safeguard client assets under the Act’s antifraud provisions. 

Here are some of the key points of the Proposed Custody Rule:

  • The proposed custody rule seeks to simplify today’s complex and global financial markets and its application to better align with the Commission’s statutory authority.
  • Since the adviser will be dealing with an array of classes of assets, the proposed custody  rule requires minimum protection for the client’s assets held in advisory accounts. 
  • The proposed rule also would explicitly include discretionary authority to trade within the definition of custody under the Custody Act. 
  • The proposed rule seeks to change the existing regulation’s exclusion of certain physical assets from the requirement to retain client assets with a qualified custodian with respect to privately issued securities.

Under the Proposed Custody Rule, advisers with custody of client assets would be required to  segregate those assets by:

(1) Titling or registering the assets in the client’s name or otherwise  holding the assets for the client’s benefit. 

(2) Not commingling the assets with the adviser’s or any of its related persons’ assets, and 

(3) Not subjecting the assets to any rights, charges, security interests, liens, or claims of any sort in favor of the investment adviser or its connected parties or creditors, unless expressly permitted by the client in writing.

The Proposed Custody Rule Aims to Improve and Modernize Recordkeeping for Advisers.

Along with the proposed regulation, the Proposal also aims to improve and modernize the recordkeeping obligations for advisers. It is anticipated that these modifications would improve the Commission’s oversight of advisers’ safety procedures and rule compliance, which will advance investor protection.

In order to improve the accuracy of custody-related data made accessible to the Commission, its employees, and the general public, The US SEC is also proposing changes to Form ADV. These changes would align reporting requirements with the proposal.


It’s worth noting that this is a proposed rule, and it has not yet been adopted or implemented. The US  SEC is currently soliciting comments on the proposed rule within 60 days from the day of publication of the rules from stakeholders and the general public, and any final rule will likely take into account the feedback received. 
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Contributor: Jerry

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Chioma Onyekelu is a highly skilled and accomplished professional in the field of cryptocurrency and blockchain technology. She is a Certified Cryptocurrency Investigator and Crypto Compliance Specialist, as well as a Blockchain Forensic Specialist and a teacher. She is also a public speaker and her teachings include consultations and practical solutions for African Start-ups on the best and most cost-effective way to build with compliance in mind. With a wealth of knowledge and experience in these cutting-edge technologies, she is well-equipped to navigate the complex landscape of cryptocurrency-related crimes.

In her current role as a Blockchain Forensic Specialist at A&D Forensics, Chioma is responsible for tracing and investigating cryptocurrency-related crimes, as well as training law enforcement agents and compliance officers on the latest developments and best practices in the field. In addition, she is currently pursuing a Master's degree in Blockchain and Digital Currencies at the University of Nicosia in Cyprus, further solidifying her expertise and understanding of the technology.

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Adedeji is a Forensic Investigation Practitioner and CertifiedBlockchain/Cryptocurrency Forensic
Investigator (CFE, CCI, CCFI & Reactor Certified) with more than Fifteen years of experience across few banks within the Nigeria Financial Sector and educator in Corporate workplace settings, Deji is uniquely qualified and involved in forensics analysis of Financial Infractions, Cryptocurrency crimes and designing plans that works for Government, Regulators, Law enforcement.

He was appointed by SEC Nigeria as Member Virtual Asset and Fintech Regulatory framework drafting Committee, He is a member of Global Digital Finance’s KYC/AML working group in France and a member of the Industry led Thinktank that worked on and came out with FATF cryptocurrency Travel rule InterMessaging Standard for Virtual Assets (IVMS101) to help combat money laundering and terrorism financing using cryptocurrencies around the globe.

His law enforcement training efforts on new money and cybercrime have seen him train many law enforcement agents in various countries i.e Nigeria Police, Nigeria Army CyberWarfare command, Zambia Financial Intelligence Unit, Zambia Central Bank and more.
He is Chainalysis Sole Africa Investigative Partner helping law enforcement investigate criminal organizations using cryptocurrency to conceal illiccit activities across Africa, he is also a training Partner for Blockchain Intelligence Group based out of Canada.

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