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ADISA Submits Comments to the SEC Regarding the Safeguarding Client Assets Proposed Rule

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ADISA submitted comments on the proposal issued by the SEC to amend and redesignate rule 206(4)-2 under the Investment Advisers Act of 1940, as amended (Release No. IA-6240). ADISA also requested a 60- or 90-day extension to the comment period provided by the Commission so that additional industry input on the proposed rule can be supplied to the Commission for its consideration.

1) The Proposed Rule – Scope and Application beyond Funds and Securities

The SEC’s Proposed Rule would engender far-reaching changes from the existing custody rule and would significantly change the approach(es) currently taken by investment advisers to safekeeping the assets of their clients. It would, if adopted, broaden the application of the Act’s custody regulations to cover a much larger array of assets, not just funds and securities, and make several other important changes.

It is ADISA’s view that the SEC should review the Proposed Rule and consider revising its provisions so as to ensure that it applies principally to assets which are securities. If the intent of the Proposal is to ensure the safekeeping of interests in private funds and other private or non-traded securities held in client accounts, then the Proposed Rule should seek to accomplish that end without sweeping in assets that are not necessarily securities and not necessarily within the adviser’s control or remit.

2) The Proposed Rule – Narrow Window for Comments

The Proposal is broad based and complex, previewing changes that will drastically and permanently alter the custody business model used by investment advisers as well as the market for custody services. The Proposal is also another significant regulatory change aimed squarely at investment advisors. This and other changes effected or contemplated by the SEC will dramatically impact the economics of advisory firms and force an expansion of the services that they, along with others, will have to provide or oversee. In light of the breadth of the Proposal and the number and magnitude of far-reaching changes, ADISA and its members do not believe that the existing comment deadline of May 8, 2023, will provide sufficient time for the industry to perform the level of analysis that the Proposal warrants, much less submit informed comments on the language, etc., set forth in the Proposal.

The letter, which was drafted by ADISA’s Legislative & Regulatory Co-Chairs John Grady, ABR Dynamic Funds, and Catherine Bowman, The Bowman Law Firm, was signed by ADISA’s President Michael Underhill, Capital Innovations.

View the letter in its entirety here.