May 8, 2023
Via E-Mail to [email protected]
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
Attn: Vanessa A. Countryman, Secretary
Re: File Number S7-04-23
SIFMA Comment on Proposed New Rule re:
Safeguarding Advisory Client Assets
Dear Ms. Countryman:
The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to comment on the Securities and Exchange Commission’s (“SEC”) proposed new rule for safeguarding advisory client assets, which redesignates current Rule 206(4)-2 to new Rule 223-1 entitled “Safeguarding Advisory Client Assets” (the “Proposal”).2 SIFMA agrees that safeguarding client assets is a core element of investor protection. For that reason, we have long supported efforts to enhance and strengthen those safeguards where necessary and appropriate.
The Proposal, however, raises a number of critical concerns for our members that are qualified custodians (“QCs”) of investor assets (including those members that are not currently QCs, but may need to become QCs under the Proposal), investment advisers responsible for advising investors, and firms that play both of these important roles. These concerns include the potential adverse consequences to clients of investment advisers through reduced numbers of available QCs, reduced access to markets and products, and the imposition of higher custodial and advisory fees, with little, if any, added protections on client assets. Other important concerns include, among others, the Proposal’s jurisdictional overreach, resulting in indirect and inappropriate regulation of QCs (over which the SEC does not have supervisory authority) without regard to compatibility with existing applicable regulatory regimes; overexpansive scope covering assets and a broad range of financial products not traditionally subject to, nor reasonably expected by advisory client to be subject to, the custody of a QC; unworkability; and the insufficient time allocated to comment on and implement the Proposal.
1 SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s nearly 1 million employees, we advocate on legislation, regulation and business policy, affecting retail and institutional investors, equity and fixed-income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (“GFMA”). For more information visit, http://www.sifma.org.
2 Release No. IA-6240; File No. S7-04-23 (Feb. 15, 2023), https://www.sec.gov/rules/proposed/2023/ia-6240.pdf; 88 Fed. Reg. 14,672 (Mar. 9, 2023), https://www.federalregister.gov/documents/2023/03/09/2023-03681/safeguarding-advisory-client-assets.