SEC proposes new rules

The Securities and Exchange Commission (SEC) has proposed changes to rule 206(4)-2 to protect the customer assets managed by registered investment advisers. This would extend the current investment adviser custody rule beyond client funds and securities to cover all client assets under an investment adviser’s control.

Qualified custodians would be responsible for the safekeeping of client assets, including crypto assets. The proposed rules aim to ensure that custodians offer standard protections, including the proper segregation of assets and the maintenance of client assets in the event of custodian bankruptcy.

SEC Chair Gary Gensler said that the proposed rules would help prevent the inappropriate use, loss, or abuse of investor assets, as authorized by Congress after the 2008 financial crisis. Gensler also noted that the changes would provide investors with time-tested protections for all their assets, including crypto assets, consistent with what Congress envisioned.

The proposed rules would also update and enhance related recordkeeping requirements for advisers and amend Form ADV to align reporting obligations with the proposed rule. The comment period will last for 60 days after the publication of the proposal in the Federal Register.