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The SEC wants comments on whether the rules should be continued without change, or should be amended or rescinded.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.

Cipperman Compliance Services has noted that the SEC has issued “well over” 50 FAQs about the custody rule. “Perhaps the SEC will acknowledge that it needs to rewrite the rule” rather than continue to issue FAQs, Cipperman opined.

Bob Plaze, a former deputy director in the SEC’s Division of Investment Management who’s now a partner in Proskauer Rose’s Washington office, added in a comment to ThinkAdvisor Wednesday that while the custody rule is up for review, it is not currently on the SEC’s Regulatory Flexibility Act agenda of rules the agency plans to take action on in the next year.

Karen Barr, president and CEO  of the Investment Adviser Association, adds that IAA would like the Commission “to amend the definition of ‘small entity’ in order to assess the impact of its regulations on a more realistic universe of smaller advisors, and especially bear in mind the impact of the custody rule on smaller advisors.”

The custody rule “has been a burdensome, complicated, and costly undertaking for advisors and we are pleased that the SEC is reviewing it in this context, as well as including it on its long term agenda for revision,” Barr said.

Funds of funds investments and mutual fund redemption fees, as well as indexed annuities and certain other insurance contracts, are also part of the SEC’s review.

The SEC states that it adopted a new rule that exempts insurance companies from filing reports under the Exchange Act with respect to indexed annuities and other securities that are registered under the Securities Act, provided that certain conditions are satisfied, including that the securities are regulated under state insurance law, the issuing insurance company and its financial condition are subject to supervision and examination by a state insurance regulator, and the securities are not publicly traded.

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