Comment Deadline Set for SEC Proposed Expansion of IA Custody Rule

Comments are due by May 8, 2023 on an SEC proposal that would expand requirements under the IAA Rule 206(4)-2 ("Custody of Funds or Securities of Clients by Investment Advisers") and amend related recordkeeping and reporting obligations. The comment deadline was published in the Federal Register.

As previously covered, the proposed changes 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). The rule would apply to (i) customer assets that are not funds or securities, as well as (ii) digital assets that the SEC has said are securities but that it generally does not permit to be held by a broker-dealer. The proposed rule would cover all "positions held in a client account" to the extent that the adviser has control over the account.

The SEC stated that the proposed rule changes will better protect customer assets managed by registered investment advisers.

For more analysis on the SEC proposal, click here for Fried Frank's Client Memorandum.