The U.S. Securities and Exchange Commission (SEC) recently proposed overhauling the custody rule under the Investment Advisers Act to enhance the protection of customer assets managed by registered investment advisers. These enhancements, which are proposed to be embodied in new rule 223-1 under the Investment Advisers Act (Proposed Safeguarding Rule), could increase the cost burden on crypto custodians and investment advisers – and harm their clients – prompting the need to exempt investment advisers from certain aspects of the Proposed Safeguarding Rule.

We outline some of the impacts of the Proposed Safeguarding Rule in a recent client alert, linked below. Our client alert also proposes an exemption from the Proposed Safeguarding Rule that gives investment advisers the flexibility to custody client assets without a qualified custodian until a more robust custody market (particularly with regard to DeFi) develops, while also safeguarding against the abuses that the Proposed Safeguarding Rule seeks to prevent.