Joint Letter to the SEC Requesting an Extension to the Comment Period on the Safeguarding Advisory Client Assets Proposed Rule

Ms. Vanessa Countryman
Secretary
Securities and Exchange Commission
100 F Street NE
Washington, DC 20549-1090

Dear Ms. Countryman:

The undersigned Associations, which together represent a significant portion of the financial services industry, including banks of all sizes, global custodians, broker-dealers, investment funds, fund managers, alternative investments and registered investment advisers, respectfully request a 60-day extension to the comment period provided by the Securities and Exchange Commission to amend and redesignate rule 206(4)-2 under the Investment Advisers Act of 1940. The proposal would broaden the application of the current investment adviser custody rule, expanding its coverage from funds and securities to all client assets, amend the definition of qualified custodian, and make several other important changes.

The SEC issued the proposal on February 15, 2023, allowing a 60-day comment period from date of publication in the Federal Register. The proposal, however, is broad based, complex, and technical, proposing changes that will drastically and permanently alter the custody business model and the prevailing market for custody services. It is anticipated, for example, that the proposed changes to contractual arrangements would remake the business relationships between registered investment advisers (RIAs) and qualified custodians, between qualified custodians and retained sub-custodians (and other hired third parties), and between RIA clients and the RIAs and qualified custodians. RIAs and financial institutions serving as qualified custodians will need time to vet the proposal internally and to consult with one another and with sub-custodians and other parties that will be impacted by the proposal.

Banks and savings associations are defined as qualified custodians under the current custody rule and many banking institutions of all sizes offer custodial services. The proposed changes to the definition of "qualified custodian" may result in some banks and savings associations falling outside this definition, which could have a material impact on their business. In addition to impacting qualified custodians, the proposal is yet another of a flurry of regulatory changes aimed at RIAs. The full impact on RIAs of the Proposal's costs and other burdens will take some time to assess.

In light of the significance of the topic and the proposed number and magnitude of far-reaching changes, we are concerned that the existing comment deadline will not provide us with sufficient time to perform the level of analysis that this proposal warrants. We are also concerned that the Commission is not taking into account that the pace and complexity of its simultaneous rulemaking ultimately may harm, rather than benefit, investors. As many of the trade associations represented in this letter, along with several others, noted in a 2022 letter to Chair Gensler, aside from the sheer volume of rulemaking items, the Commission simultaneously is tackling issues that could result in significant shifts in industry operations and practices. The letter also noted that "exceedingly short comment periods associated with numerous concurrent potentially interconnected rule proposals that touch on significant changes to the operational and regulatory regime applicable to financial firms could result in rules that hurt investors, damage the financial system, implicate the Commission's obligations under the [Administrative Procedure Act] and internal rulemaking guidelines, and ultimately violate the Commission's tripartite mission."

Respectfully submitted,

ABA Securities Association
Alternative Credit Council
Alternative Investment Management Association
American Bankers Association
American Investment Council
Association of Global Custodians
Independent Community Bankers of America
Investment Adviser Association
Investment Company Institute
LSTA
Managed Funds Association
Securities Industry and Financial Markets Association