Oct. 29, 2023
Potential issues to the above Proposal: Custody requirements - The proposed rule would impose stricter custody requirements on investment advisers, including requiring advisers with custody to maintain client assets with a qualified custodian. Some argue this could increase costs for smaller advisers. Audits - Advisers with custody would be required to undergo an annual surprise audit by an independent public accountant. Some worry the costs of these audits could be prohibitive for smaller firms. Amplified risk principles - The proposed "amplified risk principles" that advisers would have to follow are overly broad or vague. These principles may be difficult for advisers to implement and for regulators to enforce consistently. Books and records - The enhanced books and records requirements could place additional compliance burdens on advisers. The costs associated with system updates and retention may disadvantage smaller firms. Transition period - While the SEC has proposed a transition period if the rules are adopted, some argue more time is needed for firms to come into compliance given the extent of changes required. A longer transition may be needed. Effects on small businesses - the proposed rules would disproportionately affect small advisers and may force some smaller firms to close or merge. The SEC may need to reconsider impacts on small businesses.