Oct. 29, 2023
Re: File number S7-04-23, Safeguarding Advisory Client Assets. The rule seems to overlook existing remedies available to shareholders through civil litigation, arbitration, or other dispute resolution mechanisms, duplicating efforts and inflating transactional costs without commensurate benefit. The rule's application to smaller businesses and startups may prove overly burdensome, as these enterprises often operate with limited resources and staff, requiring additional personnel and infrastructure to keep pace with compliance demands. Certain aspects of the proposed rule may infringe upon constitutionally protected rights, including freedom of speech, association, and privacy, invading individuals' personal lives or chilling their exercise of legitimate liberties. Some components of the rule seem to target scapegoats instead of actual wrongdoers, penalizing innocent parties or victims who were themselves harmed by past malfeasance, thus perpetuating cycles of mistrust and retaliation. The proposed rule lacks sufficient detail or specificity in certain areas, making it challenging for entities to understand precisely what conduct falls outside acceptable bounds, thereby increasing the risk of error or misinterpretation. The proposed rule's definitions and thresholds seem arbitrary or capricious, lacking justification or rationale based on accepted industry practices or market realities, raising questions about whether they accurately reflect investor needs or expectations. The proposed rule neglects to account for the perspectives and perspectives of diverse communities, particularly those traditionally underserved or marginalized, whose voices should be heard and considered during policymaking. The proposed rule appears to ignore the practical limitations and constraints facing many organizations, such as resource scarcity, technological capabilities, or geographic location, rendering the suggested reforms impractical or impossible to implement. The proposed rule may foster regulatory capture, enabling powerful vested interests to manipulate the process to serve their narrow interests, circumventing democratic principles and social justice imperatives. The rule's rigid adherence to strict deadlines and cutoff dates may force businesses into rushed decision-making processes, sacrificing careful deliberation for expedience, potentially leading to hasty judgments and suboptimal choices. The SEC has failed to adequately consider alternative approaches, such as less restrictive measures or more targeted solutions, which might achieve similar objectives with fewer drawbacks. Some provisions within the rule appear contradictory or conflicting, creating confusion and uncertainty regarding what actions constitute a violation or breach of fiduciary duty. The rule's reliance on quantitative metrics and performance indicators may mask qualitative factors that are equally if not more critical to assessing corporate integrity and responsibility, relying solely on numbers rather than contextual nuances. The proposed rule could result in unintended consequences, such as limiting innovation, inhibiting capital formation, and hindering economic growth, which would ultimately harm investors and undermine the overall goals of securities laws. The language and scope of the proposal are overly broad and ambiguous, leaving companies uncertain about how to interpret and apply its requirements, potentially leading to confusion, inconsistency, and legal disputes. The rule's disclosure requirements may reveal proprietary information, impeding competitors' ability to compete fairly and transparently, potentially inducing a race to the bottom driven by price wars and cutthroat tactics. The rule's implications for international commerce and cross-border transactions have not been thoroughly analyzed or accounted for, possibly exposing U. S. -based firms to foreign competition while failing to advance domestic interests. The proposed rule may also have unintended consequences on the broader economy, potentially causing ripple effects across industries and markets due to its sweeping scope and complexity. For example, it could discourage foreign investment, harm domestic jobs, and hurt consumer choice through higher costs, reduced selection, or lower quality goods and services. Furthermore, the rule's implementation timeline may cause confusion and uncertainty, leading to market volatility, financial instability, and reputational damage. It is therefore crucial that regulators take a holistic view of the economic landscape, consider alternative approaches, and seek input from diverse perspectives to ensure that the final outcome serves the public interest while minimizing unnecessary burdens and undue hardships. The proposed rule ignores the potential negative impacts that excessive rules and red tape can generate, such as reduced competitiveness, decreased innovation, diminished productivity, and lower levels of job satisfaction. The rule's treatment of whistleblowers and internal investigations may discourage constructive criticism and open dialogue, stifling dissenting views and silencing potential allies in identifying and rectifying wrongdoing. The rule's enforcement mechanism may lead to excessive fines and penalties, potentially bankrupting small-scale operators and driving larger entities toward collusion, monopolization, or other anti-competitive practices. The rule may create perverse incentives that encourage strategic behavior designed to game the system rather than promote genuine conformity, defeating the intended purpose of the regulation itself. By imposing stricter standards than those required at other regulatory agencies or jurisdictions, this rule creates an uneven playing field for firms operating across multiple venues, potentially putting them at a competitive disadvantage vis-a-vis peers in other regions. The rule may exacerbate systemic risks by imposing blanket restrictions on entire classes of investments or industries rather than focusing on mitigating particular hazards or addressing specific problems. The proposed rule may fail to account for cultural differences and sensitivities among various ethnic, linguistic, or religious communities, potentially offending their values, traditions, or beliefs. The proposed rule is overly prescriptive, specifying detailed methodologies, metrics, and benchmarks that could be better left to individual boards, executives, and advisors to determine based on their unique circumstances and priorities. The burden of proof required for demonstrating compliance is too high, requiring extensive documentation, recordkeeping, and reporting, resulting in additional administrative expenses and resources diverted away from core business activities. The rule's focus on transparency and accountability obscures the importance of confidentiality and discretion, potentially compromising sensitive information, trade secrets, or intellectual property belonging to others. Finally, some elements of the rule seem politically motivated, deviating from established precedent or conventional wisdom to appease special interest groups or score political points, rather than advancing the public good or serving shareholders' best interests. The proposed rule may result in increased litigation and settlements, draining scarce resources from productive endeavors and fueling protracted legal battles, further delaying progress towards resolution. The proposed rule seems oblivious to emerging trends and disruptive technologies, failing to anticipate future developments in finance, technology, or society, exposing stakeholders to unprecedented risks and challenges. The proposed rule seems to assume that all forms of compensation are inherently suspect and problematic, unfairly castigating legitimate incentives and rewards, depriving deserving employees and entrepreneurs of deserved recognition and motivation. The proposed rule is overly complex, introducing numerous technical terms and jargon that could confuse even experienced professionals, leading to misunderstandings, errors, and disputes down the line. There is insufficient evidence supporting the need for this new regulation, as it fails to address any significant issues or provide clear benefits to investors or the broader economy. The rule's approach to cybersecurity and data protection may overlook critical weaknesses in digital architecture, leaving vulnerable entryways and loopholes that attackers can exploit, jeopardizing customer trust and reputation. The proposed rule fails to distinguish between intentional misconduct and accidental mistakes, holding responsible agents liable for unforeseeable lapses, oversights, or omissions, placing unwarranted sanctions on honest and conscientious actors. The rule's emphasis on regulatory compliance may distract management teams from pursuing innovative strategies and initiatives aimed at enhancing long-term value creation and sustainable growth. The proposed rule may contribute to mission drift, diverting attention and resources away from core functions and responsibilities, neglecting essential services and duties necessary to sustain continued viability and profitability. This rule appears to prioritize political agendas and ideologies over sound policy analysis, ignoring empirical data and expert opinions that suggest different courses of action. The implementation timeline for the rule is excessively short, giving stakeholders little opportunity to prepare, test, and adjust their systems and processes before the deadline arrives. The potential financial penalties associated with noncompliance or violations under the proposed regime are disproportionate to the nature and severity of the offenses, deterring otherwise lawful actors from participating in the marketplace out of fear of punishment. The proposed rule will impose excessive burdens on businesses, causing them to incur unnecessary costs and time-consuming compliance procedures that may negatively impact their operations and bottom lines. The proposed rule appears to place the cart before the horse, assuming that certain outcomes can be attained simply by mandating specific behaviors or policies, neglecting the role of human agency, judgment, and creativity in shaping organizational success or failure. Also, the comment period was inadequate.