Glossary > Finance > Regulatory And Compliance > Securities And Exchange Commission (SEC) Compliance

Rule 17f-2

SEC Rule 17f-2 is a regulation that requires regulated entities like investment companies and brokers to notify the SEC if they hire a foreign custodian to hold their clients' securities, ensuring that these assets are protected and secure.

Example #1

For example, if an investment firm decides to use a custodian based in a foreign country to hold the securities of their clients, they must inform the SEC about this arrangement to comply with Rule 17f-2.

Example #2

Similarly, if a broker-dealer decides to engage a foreign custodian to handle securities belonging to their customers, they must follow the notification requirements of Rule 17f-2.

Misuse

Misuse of Rule 17f-2 could occur if a financial institution fails to report its engagement of a foreign custodian to the SEC. This omission could lead to increased risk for investors, as the assets held by the custodian might not receive adequate oversight and protection.

Benefits

By adhering to Rule 17f-2, investors can have greater confidence that their securities are being held by legitimate and trustworthy custodians. This regulation helps prevent fraud and mismanagement of client assets, ultimately protecting investors and promoting market integrity.

Conclusion

In summary, SEC Rule 17f-2 plays a crucial role in safeguarding investor interests by ensuring proper oversight and reporting of engagements with foreign custodians. Compliance with this rule enhances transparency and accountability in the financial industry.

Last Modified: 4/30/2024