Oct. 28, 2023
The recent proposal from the Securities Exchange Commission (SEC) in the form of Release No. IA-6240; File No. S7-04-23 threatens to have disproportionately negative impacts on international businesses operating outside US borders, particularly those not subject to the same legal framework governing domestic entities. Speaking as a seasoned entrepreneur managing a portfolio of twelve distinct corporations spread across various continents, it becomes evident that the new directive's implications significantly outweigh its intended benefits. First off, the imposition of comprehensive documentation requirements enforced upon all investment advisors irrespective of their location appears misguided since they may conflict with extant local statutes. For instance, some countries do not impose identical fiduciary duties on representatives handling client assets compared to their American counterparts, making it hard to reconcile differences between divergent regulatory standards. Moreover, foreign governments frequently possess varying definitions of what constitutes "custody" - a pivotal concept within the text of this legislation - leading to ambiguity and confusion among overseas stakeholders attempting to navigate unfamiliar terrain. Secondly, the looming prospect of paying higher fees for compliance-related services seems unsavory given the uneven playing field created by this initiative. Non-US entities must grapple with currency fluctuations, translation expenses, legal consultancy charges, and travel expenses arising from the obligation to provide annual attestation reports in person to SEC officials stationed abroad. Since most international organizations cannot match the economies of scale enjoyed by locally incorporated competitors, this added cost burden represents a severe disadvantage relative to rivals situated inside national boundaries. Thirdly, the timeline for implementation specified by the SEC's guidance is excessively tight, giving affected parties insufficient room to adjust their systems fully before becoming liable for penalties should they fail to meet the exacting criteria outlined herein. Due to the intricacies and complexity of cross-border transactions, coupled with language barriers, cultural disparities, and geographical distances, many overseas institutions might require months to adapt adequately to accommodate this new standard, placing them at undue risk of fines, sanctions, or reputational harm because of administrative oversights caused by rushed preparations. In summity, the SEC's draft policy introduces numerous challenges for global organizations, especially those lacking US headquarters, which may endure significant difficulties reconciling differing interpretations of what qualifies as "client assets," contending with heightened price tags attached to mandatory services, and grappling with pressing time constraints, thereby creating unnecessary obstacles preventing them from engaging in productive commercial activities. Therefore, I implore the commission to review its proposals thoroughly and devise alternatives better suited to the particular needs of non-American entities, taking care not to infringe on established sovereign prerogatives or jeopardize the integrity of the international capital markets community.