Page 10 - Investment Advisor April/May 2023

Beginnings

WASHINGTON WATCH

By Melanie Waddell

SEC Votes to Expand Advisor Custody Rule

The industry says it needs more time to digest the new plan in order to
safeguard client assets.

t press time in early March,
the industry was busy digest-
A ing the Securities and Exchange
Commission plan to expand the scope of
the current advisor custody rule beyond
client funds and securities to include
any client assets of which an advisor has
custody, including cryptocurrencies.
The SEC proposed a new rule on Feb.
15 under the Investment Advisers Act of
1940 to address how RIAs safeguard cli-
ent assets, which “uses the more expan-
sive and explicit language employed by
Congress in empowering the Commission
to develop rules to protect client assets”
when advisors have custody. Congress, Gensler added, “granted current custody rule to the proposed
“I support this proposal because, in us new authorities in 2010 in response new safeguarding rule.”
using important authorities Congress to the financial crisis and Bernie The SEC’s plan, Bernstein said,
granted us after the financial crisis, it Madoff’s frauds.” “expands the reach of the [custody] rule
would help ensure that advisers don’t The proposal would cover all asset well beyond what it is today. It will expand
inappropriately use, lose, or abuse inves- classes that an advisor may custody, from covering a client’s funds and securi-
tors’ assets,” SEC Chairman Gary Gensler such as privately issued securities, real ties to include all assets in a client’s portfo-
said Wednesday during the open meeting. estate and derivatives. “Assets,” the lio with an adviser, like crypto, derivatives,
“In particular, Congress gave us author- SEC explained, would mean “funds, real estate and more. This expansion will
ity to expand the advisers’ custody rule to securities, or other positions held in a have important implications for advisers,
apply to all assets, not just funds or secu- client’s account.” clients and the markets.”
rities,” Gensler said. “Further, investors Like the current rule, Gensler said, IAA, Bernstein said, is “concerned
would benefit from the proposal’s changes the proposed rule “would entrust safe- that today’s proposal will substantially
to enhance the protections that qualified keeping of client assets to qualified cus- extend the current Custody Rule with a
custodians provide. Thus, through this todians, including, for example, certain very tight timeline in light of its complex-
expanded custody rule, investors working banks or broker-dealers.” ity and the very full regulatory agenda.
with advisers would receive the time-test- Gail Bernstein, general counsel for This will make thoughtful and thorough
ed protections that they deserve for all of the Investment Adviser Association in input very challenging, especially given
their assets, including crypto assets, con- Washington, explained in an email that how the many outstanding proposals Adobe Stock
sistent with what Congress envisioned.” the SEC’s plan is a ”redesignation of the might interact with one another.”

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