ABA Statement for the Record before the House Financial Services Committee on Oversight of the Securities and Exchange Commission

The American Bankers Association (ABA) appreciates the opportunity to provide a Statement for the Record for this hearing, "Oversight of the Securities and Exchange Commission." ABA is the voice of the nation's $23.6 trillion banking industry, which is composed of small, regional, and large banks that together employ more than 2 million people, safeguard $19.2 trillion in deposits, and extend $12.2 trillion in loans.

ABA appreciates the Committee's decision to hold this oversight hearing, which we understand is intended to review and assess the announced goals and recent regulatory actions of the Securities and Exchange Commission (SEC). We believe that the SEC plays a critical role in protecting investors, in maintaining fair, orderly, and efficient markets, and in facilitating capital formation. Unfortunately, the SEC has departed from those 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. We look forward to the Committee's deliberations at this hearing and its subsequent actions to address these areas of concern.

The SEC has recently proposed a complex and overly broad rule that would result in a fundamental shift in the bank custody model, to the detriment of markets and investors, including the retail investing public. The banking industry provides many essential economic and market functions, including the provision of custody services that are critical to the functioning of the U.S. and global financial markets. Banks have long offered safe, well-managed, and regulated custody services, providing a key source of efficiency to the financial ecosystem and ensuring high levels of investor protection. Yet, the SEC neither considers or accommodates the safety and soundness of the existing bank custody model, nor does it highlight specific deficiencies in this model. ABA is concerned that the SEC has not issued a problem statement with the well-established bank custody model that warrants broad structural changes to how custody banks provide traditional custody services. The ABA is also concerned that the proposed rule's requirements as to digital asset custody will limit, in practice, the ability of custody banks to actually offer digital asset custody services at scale.

More broadly, ABA continues to be concerned 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. To the extent impacts are mentioned in the SEC Proposal, many are premised on incorrect assumptions regarding current practices and the state of the law. We believe that these incorrect assumptions mean the SEC has failed to appreciate the scope and scale of the actual impact of the proposed rule on the custody of customer assets or whether custody in some cases could be provided at all.

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