That alone will trigger certified custodians to rethink their custodian companies 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 by means of my apply that not all custodians can or search to serve all funding advisers — there are minimal asset necessities with sure custodians. I’d not be shocked to see certified custodians taking even additional steps alongside these traces in approaching their enterprise.

Smaller advisers will likely be affected essentially the most when it comes to 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 purchasers, together with retail purchasers.

Moreover, this proposal consists of shopper belongings past money and securities — whereas that is pushed by the proposal’s deal with cryptocurrency, the growth of lined shopper belongings additionally considerations me. Outdoors the realm of crypto, this growth may have a disproportionate affect on smaller advisers. And, it is very important do not forget that 90% of SEC-registered advisers have fewer than 50 staff.

Lastly, the 60-day remark interval is just too quick for a proposal of this scale — the Custody Rule is likely one of the extra advanced guidelines beneath the Advisers Act, and this proposal would wholly exchange the prevailing rule. This isn’t a proposal amending parts — this can be 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 Greatest Curiosity exams and enforcement? Do you see the SEC taking any extra coverage actions concerning Reg BI, that is, defining ‘greatest curiosity’?

Reg BI is squarely within the realm of exams and enforcement at this level — we’d see one other Reg BI threat alert within the subsequent 12 months, however this newest one (revealed Jan. 30, 2023) actually struck me as setting expectations for what the examination workers expects to see when it comes to insurance policies, procedures and practices for Reg BI compliance.

Threat Alerts are very important in understanding the workers’s expectations and perspective. Dealer-dealers ought to overview their present Reg BI compliance framework with the Threat Alert in thoughts.

Any updates on corporations’ compliance with the SEC’s new Advertising and marketing Rule, which had a Nov. 4 compliance date? 

I used to be happy that corporations had a sturdy 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. Nevertheless, in gentle of the 18-month transition interval main as much as Nov. 4, 2022, I do consider corporations are properly 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 purchasers because the supplies had been up to date previous to dissemination, however there was an affect on trade sources.