SIFMA Criticizes SEC Proposal to Expand Application of Reg SCI

SIFMA criticized SEC proposed amendments to Regulation Systems Compliance and Integrity ("Reg SCI") that would cover entities for which Reg SCI was never intended.

As previously covered, the SEC proposed amendments to Reg SCI that would expand the scope of the regulation to cover, among other entities, large broker-dealers, as defined by various measures of size.

In a comment letter to the SEC, SIFMA argued that the entities currently subject to Reg SCI play "fundamentally different roles" in the market than broker-dealers and that the proposal thus lacks "sufficient attention" to such entities’ "critical differences" by imposing a regulatory regime that does not fit broker-dealers. Further, SIFMA argued that the proposal:

• implements thresholds that are "arbitrary, anticompetitive and burdensome" and imposed on certain broker-dealers, but not others;
• creates a new trading requirement for broker-dealers by committing capital and taking on principal risk with "no rationale";
• requires "significant tailoring" of Reg SCI’s requirements to bring broker-dealers into scope;
• fails to address the enormous compliance costs which are "not justified by any tangible benefits identified by the [SEC]"; and
• employs a "prescriptive approach" to third-party providers which could result in an increased reliance on "less sophisticated and resilient in-house systems" instead of taking advantage of "innovative third-party service providers."