The Securities and Exchange Commission’s proposed safeguarding advisory client assets rule would significantly harm investors and financial markets and exceeds the commission’s regulatory authority, according to a joint letter filed today by the American Bankers Association and three financial industry associations.
The SEC’s proposed rule would significantly restructure and expand the current custody rule, including the relationship between a registered investment adviser and a qualified custodian in relation to the assets of an RIA client, and the specific requirements that apply to qualified custodians that are banks, the associations said. They urged the SEC to withdraw and resubmit a proposal that is better targeted to its objectives. “The proposed rule suggests broad and complex changes that represent a fundamental departure from current industry practice, and, if finalized, would cause significant harm to investors and financial markets,” they said.
Among their objections, the associations said that the proposed rule’s effective regulation of custody bank operations and balance sheets exceeds the SEC’s authority, that its treatment of cash deposits is unworkable in practice, and that it shifts legal liability to custody banks, holding them accountable for actions well beyond their control. They also said that the rule raises significant questions as to how a custody bank would provide custody and segregation of assets with respect to assets that are not cash or securities, and that the SEC’s economic analysis of the rule’s effects is inadequate.
