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Fund Settlement & Custody Protocols

In the context of RWAs, a payment is not merely a transfer of value but a regulated securities transaction. Unlike e-commerce, where payments are processed instantly, investment capital must pass through a rigorous "Gatekeeper" phase before it is accepted.

This document outlines how the platform enforces SEC Rule 15c2-4 (Escrow) and BSA/AML standards to ensure that funds are only accepted from verified sources and held securely until settlement.

1. Pre-Transaction Verification (The Gatekeeper)

The system should enforce a "Blocker" logic: no financial transaction is permitted until the entity behind the wallet or bank account is identified.

Identity & Accreditation Checks

Before the payment gateway is unlocked, the investor’s profile is validated against third-party databases.

  • Identity Verification: The system should confirm the investor's identity to satisfy SEC Regulation S-ID (Identity Theft Red Flags Rule). This prevents the use of stolen financial credentials.

  • AML Screening: The user is screened against global watchlists (OFAC, UN Sanctions) in compliance with the Bank Secrecy Act (BSA).

  • Eligibility: For Regulation D 506(c) offerings, the system should verify the "Accredited Investor" status via CPA letters or income review.

Regulatory Impact: Under FINRA Rule 2090 (Know Your Customer), the platform must understand the essential facts concerning every customer before executing a transaction on their behalf.

2. Custody & Escrow (SEC Rule 15c2-4)

Once the investor is verified, funds are not transferred to the issuer directly. Instead, the system routes capital to a segregated safety account.

The Qualified Custodian

For Regulation D and Regulation A+ offerings, funds are transmitted to a Qualified Third-Party Escrow Agent.

  • Segregation: Investor funds are held in a non-interest-bearing FBO ("For Benefit Of") account, distinct from the platform’s or issuer’s operating funds.

  • Contingency Management: Per SEC Rule 15c2-4, the custodian is legally prohibited from releasing funds to the issuer until the offering’s specific closing conditions (e.g., Minimum Funding Target) are mathematically met.

Why this protects the investor:

If the offering is cancelled or fails to meet its target, the Escrow Agent acts as a neutral third party to return funds to the investor, bypassing the issuer entirely.

3. Payment Rails & Settlement Times

The platform supports multiple payment rails, each subject to specific banking regulations regarding settlement times and finality.

Fiat Transfers (ACH & Wire)

  • ACH (Automated Clearing House): Typically settles in 1–3 business days. The system marks the investment as PENDING_SETTLEMENT until the banking partner confirms receipt.

  • Wire Transfers: typically settle same-day or next-day.

  • Record Keeping: In compliance with FINRA Rule 4511, the platform retains immutable records of every transaction intent, timestamp, and bank confirmation code for a minimum of six years.

Electronic Wallets & Crypto (RWA Specifics)

  • The Travel Rule: For crypto payments, the system should capture the originator’s information to comply with FATF Recommendation 16.

  • Stablecoin Validation: The system should verify that the payment token is a permitted asset (e.g., USDC/USDT) and not a sanctioned privacy coin.

4. Reconciliation & Transparency

Transparency in fund status is a requirement under Regulation A and Regulation CF disclosure rules. The investor must know the precise location of their capital at all times.

Status Reporting

The dashboard updates the investment state based on webhooks from the banking provider:

  1. Payment Initiated: The system should have generated payment instructions.

  2. Payment Processing: Funds are moving through the Federal Reserve or Swift network.

  3. Funds Settled (Escrow): The Custodian confirms receipt.

  4. Payment Failed: The transaction was rejected (e.g., Insufficient Funds, AML Flag).

Risk Management: By waiting for "Settlement Finality" before minting or distributing tokens, the platform eliminates Counterparty Risk (the risk that the investor receives the asset but the payment bounces).