Oct. 13, 2023
Esteemed Chairman Gensler, The undersigned submits this correspondence to articulate grave reservations concerning the Securities and Exchange Commission's (the Commission) proposed rulemaking entitled "Safeguarding Advisory Client Assets" (Release No. IA-6240) promulgated on February 15, 2023. These apprehensions emanate from assorted scrutinies and perspectives that illuminate the potential prejudicial impacts and overarching issues the proposal could engender across myriad sectors of United States financial markets. In particular: 1. The proposed rulemaking may inadvertently impose regulations upon entities subject to the purview of the Commodity Futures Trading Commission (CFTC), thereby destabilizing derivatives and commodities markets overseen by the CFTC and imperiling agricultural producers and commodities market participants integral to the national economy. The evident absence of coordination with the CFTC is especially troubling given its regulatory primacy regarding United States derivatives markets and their critical price discovery and risk management functions. 2. The proposal risks disrupting futures commission merchants, commodity trading advisors, commodity pool operators, and swap dealers in facilitating access to derivatives markets, notwithstanding these entities already complying with robust customer protection regulations imposed by the CFTC. It may also hinder advisory clients' ability to enter into swaps contracts, contradicting a decade of deliberative decision-making and collaboration by domestic and international market and banking regulators. 3. The proposal has the potential to detrimentally impact commodity markets, including agricultural, energy, and digital asset markets, by necessitating impractical transaction-by-transaction verification processes that could engender systemic harm to the national economy. 4. While fortifying investor protections is a laudable aim, the proposal as drafted appears to conflict with that goal by potentially diminishing investors' access to various services, assets, and markets with well-established regulatory frameworks, thereby generating sundry adverse impacts for investors. It institutes fundamental changes to extant custody frameworks absent cogent policy justifications, risking injury to diverse investors. 5. The proposal diverges markedly from conventional custody practices, dramatically increasing the costs of custodial services, and utilizes the SEC's authority over registered investment advisors as a means to regulate entities beyond its jurisdiction. The lack of holistic economic analysis and incomplete quantification of the proposal's impacts implies a potentially reckless approach to rulemaking. 6. The proposal would fundamentally reshape customary custody practices despite custodians' history of evolving to align with industry innovations. Its asset-neutral requirements could undermine basic banking functions like holding cash and have especially detrimental impacts on digital asset markets. In light of the gravity of these concerns and the potential for widespread impacts on various sectors, the undersigned urges the Commission to withdraw the proposal. Any rulemaking affecting liquidity and customer protections in markets regulated by the CFTC is unacceptable. Moreover, the undersigned strongly recommends any future rulemaking be predicated on updated economic analysis encompassing all relevant costs, narrowly tailored to demonstrable regulatory failures regarding traditional asset custody frameworks, and developed in close consultation with impacted regulators and market participants. The undersigned welcomes continued discussions regarding viable alternatives that ensure robust investor protections without the unintended consequences the current proposal risks precipitating.