The United States House of Representatives Financial Services Committee, along with six subcommittee chairs, has expressed their dissatisfaction with the Securities and Exchange Commission’s (SEC) proposed advisory clients custody rule. In a letter addressed to SEC Secretary Vanessa Countryman, they raised concerns about the potential negative impact on the banking industry, particularly in relation to the digital asset sector.
The committee, led by Chair Patrick McHenry, argued that the SEC was overstepping its authority with the registered investment adviser (RIA) rule, which imposes stricter requirements on qualified custodians handling client assets.
According to the letter, the proposed rule extends beyond the SEC’s jurisdiction by encompassing assets such as art, cash, commodities, and nontraditional assets. It also imposes custody regulations on entities that are already subject to regulation by other authorities, thereby encroaching on the jurisdiction of other regulators.
The committee members contended that the proposal deviates from standard industry practices and would incur substantial costs, while undermining the fundamental role of banks in holding cash. They highlighted the disproportionate impact on digital asset market participants, who already face challenges in finding banks willing to provide custody services for their assets.
The digital asset market often relies on state-chartered banks and trusts for banking services. The proposed rule’s limitation of qualified custodians to federally chartered entities would create complications for these participants and reduce competition. Furthermore, the rule would interact with the SEC’s Staff Accounting Bulletin 121, further disadvantaging the banking industry.
Criticism of the proposal has also come from the Blockchain Association, venture capital firm Andreessen Horowitz, and Coinbase’s chief legal officer, Paul Grewal, who urged the SEC to make changes to the rule in a separate letter.
