Overview
Title
Proposed Collection; Comment Request; Extension: Form Custody
Agencies
ELI5 AI
The SEC wants to know what people think about their form that helps check if financial helpers (like broker-dealers) are keeping everyone's money safe. They're asking for ideas until the end of June 2025, and they say doing this takes a lot of time and money.
Summary AI
The Securities and Exchange Commission (SEC) is collecting comments on its existing Form Custody, as required by the Paperwork Reduction Act. This form is used by broker-dealers to report how they handle customer and non-customer assets. There are approximately 3,470 broker-dealers who must file this form every quarter, taking about 12 hours to complete each time. The SEC estimates the total cost for all broker-dealers to comply is nearly $57.3 million annually. The public has until June 30, 2025, to submit comments on the usefulness and burden of this information collection.
Keywords AI
Sources
AnalysisAI
The notice from the Securities and Exchange Commission (SEC) invites the public to comment on the collection of information through Form Custody, which relates to how broker-dealers handle customer and non-customer assets. The form is required to be filed quarterly by all registered broker-dealers, significantly contributing to regulatory oversight and transparency. This document is part of the SEC's efforts to comply with the Paperwork Reduction Act, ensuring that necessary information collection does not impose undue burdens.
General Summary
The document informs the public about the SEC's plan to request an extension for the information collection related to Form Custody. The form must be filed by approximately 3,470 broker-dealers within specific timeframes annually. This regular filing is intended to provide the SEC with insights into the handling of assets by these financial entities. Each filing is estimated to require 12 hours of work, resulting in a substantial industry-wide time commitment and cost.
Significant Issues and Concerns
Several issues emerge from the notice:
Cost Estimate Accuracy: The compliance cost estimate is based on data from 2013, adjusted for inflation. While this offers a consistent basis for calculation, it may not fully represent the current financial landscape or fair market compensation rates. This could affect the burden assessment accuracy.
Clarity on Non-Customer Assets: The term "non-customer assets" used in the document is left undefined, potentially leading to confusion among broker-dealers. Without clear definitions, consistent reporting could be challenging, impacting data accuracy.
Practical Use of Collected Data: The document lacks specific examples of how the SEC applies the gathered information, which could be useful for stakeholders to understand the necessity of this bureaucratic exercise.
Accessibility for General Public: The document includes complex legal and industry jargon, which may be difficult for readers without a financial or legal background to comprehend. Simplifying these terms could make the notice more accessible.
Public and Stakeholder Impact
Public Impact: The collection and scrutiny of this data underpin efforts to safeguard public interests by ensuring transparency among broker-dealers handling potentially large sums of money. This can indirectly build public trust in financial markets through regulatory oversight.
Stakeholder Impact:
Broker-Dealers: The requirement to file Form Custody presents a significant administrative burden. For smaller firms, the resource allocation for compliance may be particularly taxing. On the other hand, adherence to such regulations can enhance the operational integrity and public perception of broker-dealers.
Compliance Professionals: There is demand for specialists who understand both the requirements and the nuances of the form, potentially driving employment in compliance roles.
The feedback solicited from the public and affected parties could lead to refinement and improvement in how Form Custody is utilized to balance regulatory needs with participant burdens. By commenting, stakeholders can influence potential adjustments to the burden or clarity of the information collection. This participatory approach helps ensure that regulations evolve to better serve efficiency and effectiveness in the financial sector.
Financial Assessment
The document provides financial estimates regarding the compliance costs associated with filing Form Custody, as mandated by the Securities and Exchange Commission (SEC). This form requires broker-dealers, businesses involved in buying and selling securities, to report certain information under the Securities Exchange Act of 1934.
Summary of Financial References
The document details that, on average, a broker-dealer would spend approximately 12 hours to complete and file Form Custody each year. There are around 3,470 broker-dealers expected to comply with this requirement. In total, this results in an industry-wide reporting burden estimated to be approximately 166,560 hours annually.
The associated cost for this compliance time is calculated based on an average hourly rate of $344 for a compliance manager. Using this rate, the total internal cost of compliance across the industry is estimated to be approximately $57,296,640 per year.
Financial References and Identified Issues
Accuracy of Cost Estimates: The document's use of $344 per hour as the cost of a compliance manager is based on figures from a 2013 report by the Securities Industry and Financial Markets Association (SIFMA). This rate has been modified for inflation and to account for additional factors such as bonuses, firm size, and overhead. However, one issue highlighted in the document is that this estimate may not accurately reflect current market conditions. The adjustments mentioned might not fully capture the ongoing changes in salary trends or the economic environment.
Clarity and Practical Use: While the document provides detailed cost estimates, it does not clarify how the information collected through Form Custody is utilized by the SEC. The financial allocations for compliance become questionable when the document doesn't specify how the collected data is used practically, potentially affecting the perceived necessity and justification for these expenses.
Ambiguity on Reporting Requirements: The document includes complex terminology, such as "non-customer assets," without clear definitions. This lack of clarity could lead to confusion about what broker-dealers need to report, which might indirectly influence the financial estimates if incorrect or inconsistent data reporting occurs.
Conclusion
Overall, while the document attempts to provide a thorough financial breakdown of compliance costs, the clarity and relevance of these figures should be further scrutinized for accuracy. Consideration of updated market conditions and a simplified explanation of the form's practical usage could enhance the document's effectiveness in communicating these financial aspects to the general public.
Issues
• The document estimates the cost of compliance based on an hourly rate of $344 for a compliance manager, derived from a 2013 SIFMA report and adjusted for inflation. This cost estimate may not reflect current market conditions accurately.
• The document does not provide specific examples or scenarios to illustrate how the information collected via Form Custody is practically used by the SEC, which could help justify its necessity.
• There is a lack of clarity on what constitutes 'non-customer assets' that broker-dealers might maintain custody of, leading to potential ambiguities in reporting requirements.
• The document uses complex terminology and references multiple statutes and regulations without providing a simplified summary, which can make it difficult for non-experts to understand.