Industry officials anticipate that the Securities and Exchange Commission will receive lots of feedback on the Custody Rule, which is among the list of 12 rules that the agency is currently seeking comment on as part of its retrospective review of rules.
The commission is required to review its rules every 10 years as part of the Regulatory Flexibility Act.
The SEC wants comments on whether the rules should be continued without change, or should be amended or rescinded.
“From an investment management industry perspective, there are certain areas that will receive attention, probably most notably the custody rule,” Clifford Kirsch, partner in Eversheds Sutherland’s New York office, told ThinkAdvisor on Wednesday.
Kirsch, who focuses his practice on investment management and regularly counsels clients on the regulations governing advisors and broker-dealers, said commenters will likely request that the custody rule “be scaled back in certain respects including the broad definition of what constitutes custody.”
The custody rule, Kirsch said, “has become the most complicated of the Advisers Act rules. One of the main reasons is that the definition of what custody is goes beyond mere possession and covers access to customer funds. But to fully understand what constitutes access you have to parse through various SEC releases, no-action letters and staff FAQs.”
Indeed, the agency released yet another FAQ in June on the custody rule, with the agency’s Investment Management division seeking to clarify, among other issues, previous guidance on inadvertent custody.