More than two dozen trade groups urged the Securities and Exchange Commission Tuesday not to adopt its Safeguarding Advisory Client Assets proposal "in its current form."
The 26 groups — which include the Securities Industry and Financial Markets Association, Financial Services Institute and the Investment Company Institute — told SEC Chairman Gary Gensler in a letter that the agency should first "gain a better understanding of the current" custodial framework.
In February, the SEC voted 4-1 to expand the scope of the current advisor custody rule beyond client funds and securities to include any client assets of which an advisor has custody, including cryptocurrencies.
On Aug. 23, the SEC reopened the comment period on the proposed new safeguarding rule that would redesignate and amend the current custody rule under the Investment Advisers Act.
The initial comment period ended on May 8. The rule was published on Aug. 30 in the Federal Register for a 60-day comment period.
"Where the Commission can identify shortcomings that have failed to protect investors from loss or misappropriation of traditional assets, it should propose changes, based on a careful evaluation of the issues identified by commenters, that target any gaps in the current custodial framework while preserving that framework's many strengths," the trade groups wrote.
They continued: "If those changes represent a material change from the approach in the Proposal, the Commission should withdraw and re-propose the Proposal."
Finalizing a new rule "of which significant portions have been materially changed from the version as proposed would deny the public the opportunity to provide invaluable feedback on those changes and deprive the Commission of the benefits of any such feedback, consequences that would undermine the integrity and quality of our securities markets and the regulations that govern them," the groups said.
The proposal, the groups reiterated to Gensler, includes "four fundamental changes to today's well-established and demonstrably effective custody framework without a clear policy rationale," including creating "an overly broad definition of 'custody' that includes many advisor practices that are already heavily regulated."
