Reminders for the Safeguarding Rule
- The Custody Rule would apply to all client assets that the Registered Investment Adviser (“RIA”) has custody over, instead of solely client Funds and Securities.
- The adviser’s discretionary authority to trade client assets would explicitly be within the definition of custody.
- RIAs with custody of client assets would be required to maintain the assets with a qualified Custodian, who would have “possession or control” of the assets.
- Advisers would need written agreements from Custodians that clients receive certain standard custodial protections, including, but not limited to:
- Client assets should be properly segregated.
- Assets should be held in accounts to protect assets from Custodian bankruptcy or other insolvency.
- Advisers would need to keep more detailed records of trade, transaction activity, and position information for each client account in their custody.
Concerns Raised so far by the Industry
The following concerns raised below are common comments provided by individuals and entities that can be found here.
- Comments have expressed concerns that the SEC is overstepping its authority by potentially regulating assets that are not securities related.
- Some Compliance Officers have found redundancies and potential conflicts in the regulations, due to other governing bodies that also regulate custodianship.
- Smaller Firms feel that significant burdens would be placed on them through this regulation without any obvious benefit to the investors.
Due to the recent rule adoption related to Private Fund Advisers, it is essential that Advisers reassess the effects of the proposed Safeguarding Rule and make any comments they feel are important for the SEC to know.
The comment period will also last 60 days from the reopening date published in the Federal Register.
If you are concerned about how this proposed rule might affect your business, please reach out to us directly.