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This article comes from Fried, Frank, Harris, Shriver & Jacobson LLP.
On February 15, 2023, the Securities and Exchange Commission (“SEC”) voted 4-1 in favor of proposed rule changes under the Investment Advisers Act of 1940 (the “Advisers Act”) that would replace the current “custody rule” (“Custody Rule”)[1] with a new “safeguarding rule” (“Proposed Safeguarding Rule”) and make corresponding amendments to the Advisers Act recordkeeping rule and Form ADV.[2] The Proposed Safeguarding Rule,[3] if adopted as proposed, would apply much more broadly in terms of covered assets and authorities that constitute custody than the Custody Rule and would impose significant additional and more burdensome requirements on registered investment advisers and, indirectly, on custodians. If the Proposed Safeguarding Rule is adopted as proposed, we expect that compliance with the rule would involve substantial additional costs for both registered advisers and their clients, including additional fees to accountants and a likely increase in the cost of custodial services.
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