It is evident that the U.S. Securities and Exchange Commission (SEC) and Financial Industry Regulatory Authority (FINRA) are constantly putting efforts forward to navigate the unchartered waters of cryptocurrency. Just days before Blockstack’s Reg A+ token offering received SEC approval, the SEC and FINRA issued a joint statement to provide guidance and encourage innovation and ongoing discussions with market participants on the idea of the custody of cryptocurrency for broker-dealers.
If you are a private fund adviser (i.e. hedge fund or pooled investment vehicle), do you know if you are deemed to have custody? If so, is your Form ADV Part I completed correctly? Custody for private fund advisers is regarded by the SEC as an extremely important topic and should be reviewed frequently by your firm.
Since there is a significant increase in compliance responsibilities for firms that have custody of client funds and/or securities, it’s critical that you consider whether or not your firm will be deemed to have custody.
Custody remains a focus area for SEC and state regulators alike. Firms should review the guidance released by the SEC to learn what steps can be taken to avoid having inadvertent custody requiring an independent surprise examination.
Guidance Issued by the SEC: Inadvertent Contractual Custody
In guidance notice No. 2017-01, “Inadvertent Custody: Advisory Contract Versus Custodial Contract Authority,” the SEC lists examples of problematic statements listed in agreements between clients and qualified custodians. The staff has determined an investment adviser may inadvertently have custody of client funds or securities because of provisions in a separate custodial Read More…