Custody Rule 206(4)-2

Definition ∞ Custody Rule 206(4)-2 is a regulation from the U.S. Securities and Exchange Commission (SEC) that mandates how investment advisers must safeguard client funds and securities. This rule requires registered investment advisers to hold client assets with a qualified custodian, ensuring protection against misappropriation and insolvency. It imposes specific requirements for record-keeping, independent verification, and client notification regarding asset holdings. The rule aims to protect investors by separating client assets from the adviser’s own assets, thereby reducing risks of fraud or mismanagement. Compliance is a critical aspect of regulatory adherence for financial firms.
Context ∞ Custody Rule 206(4)-2 is highly relevant in the digital asset sector as regulators assess how existing financial regulations apply to cryptocurrencies. A significant discussion point involves determining which entities qualify as custodians for digital assets, given their unique technical characteristics. Future regulatory guidance may clarify the application of this rule to various digital asset holdings and service providers.