Securities Regulation Daily Wrap Up, EXPERT INSIGHTS—Architect of the investment adviser ‘Custody Rule’ updates his authoritative outline and weighs in on the rule’s future, (Nov 13, 2025)
By Matt Garza
Regulation of Custodial Practices under the Investment Advisers Act of 1940 - Rule 206(4)-2, a comprehensive outline of the Securities and Exchange Commission rule designed to prevent fraud and safeguard investor funds, has been updated by Robert E. Plaze, former Deputy Director of the SEC’s Division of Investment Management.
The outline is a history and practical guide to the rule, which was adopted in 1962 and overhauled in 2003 in response to market developments, and again in 2009 in response to the Bernie Madoff Ponzi scheme. The outline offers a detailed explanation of the requirements for taking custody of client funds, and it continues to serve as a trusted reference guide on Rule 206(4)-2 for registered investment advisers, their custodians, as well as accountants and compliance officers.
Mr. Plaze has added an epilogue commenting on the challenges the SEC faces to reconcile the rule with cryptocurrencies and other digital assets that are increasingly held on the blockchain, without undermining the protections built into the rule. He has described the current rule as “late stage” in the context of development of the blockchain for clearance and custody, but still a compliance challenge to even the largest advisers with the most sophisticated counsel.
To read the outline, click Regulation of Custodial Practices under the Investment Advisers Act of 1940 - Rule 206(4)-2.
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