Welcome to Financial Advisor IQ

SEC Probes RIA Custody of Digital Assets

March 15, 2019

The SEC’s Division of Investment Management is seeking comment on custody of digital assets by RIAs, according to news reports.

The division had issued a guidance update on the custody rule two years ago, which led to questions in the industry about the regulatory status of practices that aren’t processed or settled on a delivery versus payment basis, or Non-DVP basis, ThinkAdvisor writes, citing the SEC.

The regulator says it wants input from market participants as well as the public on how the custody rule applies to digital assets and whether the rule needs revisions, according to the publication.

The SEC also says the custody rule is part of its long-term unified agenda, ThinkAdvisor writes.

More specifically, the regulator wants input on what types of instruments trade on a non-DVP basis, the risks of misappropriation or loss tied to such trading and the controls RIAs have to address the risks and conduct independent checks, according to the publication.

The SEC also wants comment on whether certain types of transactions have greater or lesser risk of misappropriation or loss, and on the role custodians have in the settlement process of non-DVP tradings and in mitigating risks in such trading, ThinkAdvisor writes.

Furthermore, the regulator seeks input on the marginal costs advisors face in adding accounts trading on a non-DVP basis and the challenges created by surprise examinations of non-DVP trading, according to the publication.


The SEC also wants to hear whether some external checks could prove more effective and less costly than surprise exams, and how new technologies such as blockchain could affect client protection in non-DVP trading, ThinkAdvisor writes.

Nicolas Morgan, partner at Paul Hastings in Los Angeles, tells the publication the outreach “appears to be part of a thoughtful, deliberate approach by all divisions within the SEC on this topic: ask questions and learn about the space before storming ahead.”

By Alex Padalka
  • To read the ThinkAdvisor article cited in this story, click here.