That alone will trigger certified custodians to rethink their custodian providers from a enterprise perspective, as will the extra potential requirement of a custodian-adviser contractual relationship with set phrases below the rule.
I’ve additionally seen anecdotally by my follow that not all custodians can or search to serve all funding advisers — there are minimal asset necessities with sure custodians. I might not be stunned to see certified custodians taking even additional steps alongside these strains in approaching their enterprise.
Smaller advisers can be affected essentially the most by way of lack of vary of decisions, which isn’t productive from a business perspective. A scarcity of decisions may imply rising prices, which may in the end be handed onto shoppers, together with retail shoppers.
Moreover, this proposal consists of consumer property past money and securities — whereas that is pushed by the proposal’s give attention to cryptocurrency, the enlargement of coated consumer property additionally issues me. Outdoors the realm of crypto, this enlargement may have a disproportionate affect on smaller advisers. And, you will need to keep in mind that 90% of SEC-registered advisers have fewer than 50 staff.
Lastly, the 60-day remark interval is just too brief for a proposal of this scale — the Custody Rule is among the extra complicated guidelines below the Advisers Act, and this proposal would wholly substitute the present rule. This isn’t a proposal amending elements — it is a proposed rewrite of the rule.
Each the remark interval and the implementation timelines needs to be longer than they’re now.
What’s forward for Regulation Finest Curiosity exams and enforcement? Do you see the SEC taking any extra coverage actions relating to Reg BI, that is, defining ‘finest curiosity’?
Reg BI is squarely within the realm of exams and enforcement at this level — we would see one other Reg BI danger alert within the subsequent yr, however this newest one (revealed Jan. 30, 2023) actually struck me as setting expectations for what the examination employees expects to see by way of insurance policies, procedures and practices for Reg BI compliance.
Danger Alerts are very important in understanding the employees’s expectations and standpoint. Dealer-dealers ought to overview their present Reg BI compliance framework with the Danger Alert in thoughts.
Any updates on companies’ compliance with the SEC’s new Advertising and marketing Rule, which had a Nov. 4 compliance date?
I used to be happy that companies had a strong 18-month transition interval to the compliance date, which gave them time to implement the rule. The publication of an FAQ simply over two months after the Nov. 4 compliance date was surprising and did trigger some course correction among the many trade. Nonetheless, in gentle of the 18-month transition interval main as much as Nov. 4, 2022, I do imagine companies are nicely ready going into 2023 examinations.
Due to the FAQ’s method to gross versus web, some advisers additional sharpened disclosure and presentation of gross versus web. The sensible affect was reproducing supplies for 4Q 2022 that had already been finalized. None of this impacted traders and shoppers because the supplies have been up to date previous to dissemination, however there was an affect on trade assets.
