Hello dear readers.  If you are reading this today, on April 1, and you have a December 31 fiscal year end, then you have survived your annual Form ADV amendment.  Congratulations!  And while many of you are doubtless gearing up for an annual Form PF filing due at the end of this month, you might also pause and take a few moments to dwell on everyone’s favorite rule under the Investment Advisers Act of 1940; I refer, of course, to Rule 206(4)-2, the “Custody Rule.”

In the course of the past few months, we have seen two potentially significant developments concerning the rule.  First, on December 20, 2018, the SEC staff granted no action relief to Madison Capital Funding LLC concerning Custody Rule issues related to loan syndications where the adviser acted as agent for the syndicate, which included non-clients (check out Mayer Brown’s Legal Update for more information), and more recently, on March 12, 2019, SEC staff released a letter seeking comment on issues arising under the Custody Rule related to assets traded on a non-“Delivery versus Payment” basis (such as the loans at issue in the Madison Capital no-action letter) as well as digital assets (check out Mayer Brown’s Legal Update on this one too).  We know from SEC staff statements in the March 12 letter, and from the SEC’s long-term unified agenda, that potential changes to the Custody Rule are in the works, and market participants are being given the rare opportunity to comment and potentially shape the future direction of the rule before any changes are even issued in proposed form.  For advisers that are active in the loan market (and other non-DVP asset classes) or invest in digital assets, we suggest that you consider taking ownership (custody, even!) of how the Custody Rule impacts your business, and weigh whether to provide input to the staff, either alone, or together with similarly situated advisers or associated trade groups.