The SEC's proposed changes to the Custody Rule may have the effect of encouraging financial advisors to move to an AUA (assets under advisement) model instead of an assets under management (AUM) model
, came just a few years later. The seeds of the digital asset industry were planted with the bitcoin whitepaper nearly 15 years ago as a novel way to send value natively across the internet without the need for a trusted third party. Five years after that, the Ethereum whitepaper was published. In the years since, an entirely new asset class has emerged, and advisors are now being asked to guide investors engaged with it.
“We believe it is important to extend the protections of the rule by explicitly including “discretionary authority” within the definition of custody. However, because we continue to believe more limited risk of loss exists when a qualified custodian participates in transactions, we are also proposing a limited exception to the surprise examination requirement of the rule.
The proposed new rule will make it far more difficult for advisors to meet this rapidly growing demand for responsible advice and management of digital/crypto assets. This asset class trades 24/7/365, has unique characteristics, and doesn’t fit nicely with current regulatory or even product wrappers designed in the 1990s .
One effect the new rule could have: Since it doesn’t greatly impact advisors that use an assets under advisement model – as opposed to an assets under management with discretion model – it might push the industry more towards the former, particularly those advisors offering services and advice for digital assets. That shifts the burden of custody, and it’s an open question how many clients have the tolerance for such a future.This content was produced by CoinDesk Indices, Inc.
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