The Custody Rule
The AIC urges the SEC to update the Custody Rule to remove unnecessary burdens.
The SEC’s Custody Rule (Rule 206(4)-2) imposes many unnecessary burdens on private fund sponsors with respect to the custody of privately offered or restricted securities (which are not readily transferable and thus not at risk of misappropriation) and smaller friends-and-family funds (where the cost of complying with the Custody Rule outweighs the protection that it provides). At the request of the AIC, the staff of the SEC’s Division of Investment Management (“IM”) has already addressed certain Custody Rule issues our members faced through interpretative guidance. We believe that IM should also address the issues described above through interpretative guidance. If they are not able to do so, we believe the SEC should consider rule amendments to substantially reduce unnecessary burdens imposed by the Custody Rule on private equity funds.
