Investment Advisers Empowered
Today, the Securities and Exchange Commission proposed changes to rules that would make it easier for registered investment advisers to protect their clients’ money. If the changes were made, rule 206(4)-2, the Commission’s custody rule, under the Investment Advisers Act of 1940, would be changed and renamed.
There would also be changes to certain recordkeeping and reporting requirements.
SEC Chair Gary Gensler said, “I support this proposal because it would use important powers Congress gave us after the financial crisis to make sure that advisers don’t use, lose, or abuse investors’ money in a bad way.” “Congress gave us the power, in particular, to make the advisers’ custody rule apply to all assets, not just funds or securities.
Also, investors would benefit from the changes in the proposal that would make qualified custodians offer more protections. So, this expanded custody rule would give investors who work with advisers the protections they deserve for all of their assets, including crypto assets, which is what Congress wanted.
The proposed rules would let the Commission use its power under section 411 of the Dodd-Frank Act by expanding the current investment adviser custody rule to include all client assets in the possession of an investment adviser or when the adviser has the power to get possession of client assets. Like the current rule, the proposed rule would allow qualified custodians, such as certain banks or broker-dealers, to keep client assets safe.
The proposed changes are meant to make sure that qualified custodians provide certain standard custodial protections when keeping an advisory client’s assets. These protections are meant to make sure, among other things, that client assets are properly separated and held in accounts to protect them in case a qualified custodian goes bankrupt or has some other kind of financial trouble.
The proposed rule would also make sure that certain securities and physical assets that can’t be kept by a qualified custodian are better protected. Also, the proposal keeps the current rule that an adviser who has custody of client assets must get a surprise audit from an independent public accountant to check the assets. However, the audit provision would be changed to make it easier to use, protect investors more, and make compliance easier.
Lastly, the proposal would update and improve the record-keeping requirements for advisers and change Form ADV to make sure that advisers’ reporting obligations are in line with the proposed rule and that the Commission, its staff, and the public have access to more accurate data about custody.
After the proposal release is put in the Federal Register, people will have 60 days to say what they think about it.
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