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 beneath the rule.
I’ve additionally seen anecdotally via my observe that not all custodians can or search to serve all funding advisers — there are minimal asset necessities with sure custodians. I’d not be stunned to see certified custodians taking even additional steps alongside these traces in approaching their enterprise.
Smaller advisers shall be affected probably the most by way of lack of vary of selections, which isn’t productive from a industrial perspective. A scarcity of selections also can imply rising prices, which might finally be handed onto purchasers, together with retail purchasers.
Moreover, this proposal consists of consumer property past money and securities — whereas that is pushed by the proposal’s concentrate on cryptocurrency, the enlargement of coated consumer property additionally issues me. Outdoors the realm of crypto, this enlargement can have a disproportionate affect on smaller advisers. And, it is very important keep in mind that 90% of SEC-registered advisers have fewer than 50 staff.
Lastly, the 60-day remark interval is simply too quick for a proposal of this scale — the Custody Rule is likely one of the extra complicated guidelines beneath the Advisers Act, and this proposal would wholly exchange the prevailing rule. This isn’t a proposal amending elements — it is a proposed rewrite of the rule.
Each the remark interval and the implementation timelines must 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 ‘greatest curiosity’?
Reg BI is squarely within the realm of exams and enforcement at this level — we would see one other Reg BI threat alert within the subsequent yr, however this newest one (printed Jan. 30, 2023) actually struck me as setting expectations for what the examination workers expects to see by way of insurance policies, procedures and practices for Reg BI compliance.
Threat Alerts are important in understanding the workers’s expectations and viewpoint. Dealer-dealers ought to assessment their present Reg BI compliance framework with the Threat 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 business. Nevertheless, in gentle of the 18-month transition interval main as much as Nov. 4, 2022, I do consider companies are effectively ready going into 2023 examinations.
Due to the FAQ’s strategy to gross versus internet, some advisers additional sharpened disclosure and presentation of gross versus internet. The sensible affect was reproducing supplies for 4Q 2022 that had already been finalized. None of this impacted buyers and purchasers because the supplies had been up to date previous to dissemination, however there was an affect on business assets.