Regulation of Custodial Practices Under the Investment Advisers Act of 1940 Rule 206(4)-2: June 2022

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Background -

A. Adoption in 1962 -

The SEC has regulated custodial practices of investment advisers since 1962, when it first adopted rule 206(4)-2 (the “Custody Rule”) under the Investment Advisers Act of 1940 (“Advisers Act”) under newly-acquired authority to adopt rules to prevent fraud by investment advisers. The purpose of the rule was to require advisers that have custody of client funds or securities to implement a set of controls to insulate them from “any unlawful activities or financial reverses, including insolvency, of the adviser.”

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