Overview As firms prepare their annual ADV updates or review their compliance programs, one area […]
President and Chief Executive Officer of the Investment Adviser Association, Paul Cellupica, has posted a letter to President & Chief Executive Officer of the Investment Adviser Association, Karen Barr, on behalf of the division’s staff, asking investment advisers for public comments and input on the Custody Rule as it applies to the emerging landscape of digital assets.
Issues have been raised about the regulatory status of the trading practices involving digital assets. Cellupica inquired about the Custody Rule as it applies to the Investment Advisers Act of 1940, and the role it serves with the growth of digital assets. The SEC is asking for input amid the possibility they could be reconsidering existing custody rules in specific cases of digital asset trading and settlement.
The current Custody Rule (Rule 206(4)-2) protects investors who delegate custody of their funds or securities to investment advisers or firms under the Advisers Act. The custodial authority given to professional investment advisers provides an ”increased risk of misappropriation or misuse of [investors’] assets” when it comes to going digital, as Cellupica wrote in the letter.
One of the specific points the SEC wants to clear up is how the Custody Rule applies to digital assets - specifically the issue of “non-DVP arrangements,” or delivery versus payment. The types of digital assets that trade on a non-DVP basis and what role investment advisers will play in non-DVP digital asset trading are a few examples of questions raised in the letter. The SEC’s goal in reaching out for public input is to reinforce compliance for investment advisers in trading digital assets, which is relatively new to the investment adviser industry.
All in all, the SEC wants to lay groundwork for how characteristics particular to digital assets will impact compliance with the Custody Rule going forward.
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