Custody Rule and Disclosure Violations
SEC Releases
Introduction
The SEC obtained a final judgement against a New York RIA this month (June, 2025) for failing to comply with Commission requirements for the safekeeping of client assets and failing to disclose material risks and conflicts of interest.
Custody Rule violations have been on the SEC’s radar, as the SEC has indicated investor protection as one of their continued key priorities.
What Happened?
According to the SEC:
- The Firm managed nearly $400 million of client assets maintained by an Australian Financial Services Company under common control of the RIA.
- From 2019, the RIA did not obtain an internal control report related to the safeguarding of client assets by the Custodian.
- The RIA did not disclose the risks and conflicts of interest to its clients while the Custodian borrowed millions of dollars using client assets as collateral.
- Due to these violations, the RIA has received a conduct-based injunction that permanently enjoins the Firm from acting as an Investment Adviser.
Vigilant’s Conclusion
Firms should implement a strong culture of compliance in their business activity, so compliance concerns are addressed during the decision-making process. Treating compliance as a separate consideration, or a hoop that must be jumped through, frequently leads to avoidable and costly mistakes.
As the regulatory landscape evolves over the next four years, it is essential for Firms to maintain a strong commitment to compliance by ensuring the appropriate resources remain in place to support long-term success.
Contact Vigilant today to learn more about how we can support that long-term compliance success.