The Securities and Exchange Commission’s proposed rule to safeguard the assets of advisory clients 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 custodial rule, including the relationship between a registered investment adviser and a qualified custodian in relation to an RIA client’s assets, and the specific requirements that apply to qualified custodians. that they are banks, the associations told her. They urged the SEC to withdraw and resubmit a proposal that is better directed at their goals. “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 custodial bank operations and balance sheets exceeds the SEC’s authority, that its treatment of cash deposits is impracticable in practice, and that it moves legal liability to custodial banks, making them liable for actions well beyond their control. They also said the rule raises important questions about how a custodial bank would provide custody and asset segregation with respect to assets other than cash or securities, and that the SEC’s economic analysis of the rule’s effects is inadequate.