SEC Reopens Comment Deadline on Proposed Expansion of Advisers Act Custody Rule

The SEC reopened and extended the comment deadline until October 30, 2023 on a proposal to significantly amend and redesignate Advisers Act Rule 206(4)-2 ("Custody of Funds or Securities of Clients by Investment Advisers"). The extension of the comment period was published in the Federal Register.

The proposal would require the safekeeping of virtually all client assets by "qualified custodians" - a term that generally includes U.S. financial institutions and certain foreign financial institutions - at all times, including during the trade settlement process (see related coverage). The rule would cover all "positions held in a client account" to the extent that the adviser has certain authority over the account. As outlined in the proposal, the rule would apply to (i) customer assets that are not funds or securities (e.g., commodities and works of art) and (ii) assets that the SEC has said are generally securities but that it generally does not permit to be held by a broker-dealer (e.g., cryptocurrencies).