ABA raises concerns about SEC’s agenda ahead of oversight hearing

The Securities and Exchange Commission has departed from its objectives “by rewriting a broad range of rules governing institutional and retail brokerage, advice and investing, often with no prior reaction or input from affected parties or from the general public, threatening the very fabric of the smooth and proper functioning of the financial markets,” the American Bankers Association said in a statement submitted for the record of a House Financial Services Committee oversight hearing Tuesday.

Among other things, ABA pointed to a recently proposed rule that would “result in a fundamental shift in the bank custody model.” Under the SEC proposal, a bank wishing to serve as a “qualified custodian” for investment advisor client assets would need to segregate client cash in an account with terms that “identify clearly that the account is distinguishable from a general deposit account’ so that client assets (including cash) are protected ‘from creditors of the bank in the event of their insolvency or failure.'”

“The SEC proposal does not differentiate between deposits, which banks are uniquely capable of holding on their balance sheets, and securities, which are always segregated from proprietary assets,” ABA noted. “Altering the current bank custody model in this way would be very disruptive to the orderly functioning of the U.S. markets, introduce new risks to the financial system and materially increase investor costs.”

ABA also raised concerns about “the volume of significant rulemaking that the SEC is undertaking with implications for the banking industry, with very limited comment periods and with no publicly stated discernment from SEC staff on the cumulative impact these concurrent, major rulemakings—once finalized—will have on financial markets and on SEC-regulated persons and entities.” Read the statement.