FYI: SEC Seeks IA Custody Information

FYI: The SEC’s Division of Investment Management is requesting information on industry practices in certain areas to help it consider whether and how further amendments to the Advisers Act Custody Rule should be made. This request is further evidence that the SEC is still struggling to understand all the nuances of the Custody Rule and its application in a variety of IA operations.

The request sets out a series of questions seeking information about custody and related practices in two areas of particular concern:

1) Non-DVP Assets. Non-DVP assets are securities or other assets that do not settle on a “delivery versus payment” basis, the usual basis for settling securities transactions, where custodians are under instructions to transfer funds (or securities) out of a client’s account only upon corresponding transfer of securities (or funds) into the account. Prior SEC statements are generally interpreted as “excepting” from the Custody Rule authorized trading made on a DVP basis given that the DVP arrangement minimizes the risk that an adviser could withdraw or misappropriate the funds or securities in its client’s custodial account. Non-DVP assets, on the other hand, could pose a host of potential risks or other complications that the SEC staff aims to assess as it further considers the Custody Rule.

2) Digital Assets. The SEC staff has already been in dialog with industry and others about digital assets through its so-called Strategic Hub for Innovation and Financial Technology (“FinHub”). However, the staff is seeking additional input on a variety of questions that could bear on whether or how the Custody Rule applies to this type of asset.

Although the SEC’s request for information was made by letter addressed to the Investment Adviser Association, the letter expressly states that input is being sought from all interested parties, and a special email box has been set up for communicating with Division staff on these issues.

SEC staff letter requesting information:

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