SEC Safeguarding Rule Proposal: What A Crypto Investment Adviser Needs To Know

Highlights of the Proposed Rule:

• The Proposed Rule would expand the types of "assets" subject to the Safeguarding Rule to include crypto asset positions held in a client account.
• Despite a historical lack of guidance on the topic, Qualified Custodians would nonetheless be required to have "possession or control" of advisory client crypto assets.
• Limited Qualified Custodian crypto asset offerings may materially impact crypto asset trading strategies.
  
  Please see our companion client alert here for further details on the Proposed Rule.

On February 15, 2023, the U.S. Securities and Exchange Commission (SEC) released a proposed rule change (the Proposed Rule) redesignating the "custody rule" (i.e., Rule 206(4)-2 of the Investment Advisers Act of 1940, as amended) (the Custody Rule) as the "safeguarding rule" (the Safeguarding Rule). The Proposed Rule would require investment advisers (Advisers) and qualified custodians (Qualified Custodians) to take