Oct. 7, 2026
This is a resubmission of my earlier comment on S7-2026-35, with my identification added for the record. The full comment is below. Subject: Opinions and Suggestions on File No. S7-2026-35 (Crypto Custody Rules) Based on an analysis of regulatory policy and legal frameworks, I submit the following opinions and suggestions regarding this proposed rule: I. Questions regarding Statutory Authority (Response Required) The proposal attempts to extend the 1940 Investment Company Act and Advisers Act directly to modern crypto assets without explicit congressional authorization. Under the Major Questions Doctrine in administrative law, federal agencies should not regulate areas of vast economic and political significance without clear legislative authorization from Congress. I request that the SEC specifically respond: What is the specific statutory provision that grants the SEC the authority to regulate "crypto assets" as securities for custody purposes? If such authorization is absent, the legal foundation of this rule faces serious challenge. II. Questions regarding Conflicts of Interest in "Adviser Self-Custody" (Response Required) The proposal permits investment advisers to self-custody client crypto assets. I request that the SEC specifically respond: Under this arrangement, which places the adviser as both referee and player, what specific mechanisms will the SEC employ to prevent adviser misappropriation and internal misconduct? Does the current economic analysis sufficiently assess the market manipulation risks arising from this inherent conflict of interest? III. Recommendations based on the Above Questions Given the fundamental questions regarding the legal foundation and conflicts of interest mentioned above, I offer the following recommendations: The SEC should reassess the feasibility of advancing this rule under the existing legal framework. It is advisable to consider pausing this rulemaking and refer the legislative issues to Congress for specialized deliberation. If this rulemaking proceeds, the SEC should mandate the introduction of independent third-party audit mechanisms and establish stricter information disclosure standards in the final rule, rather than relying on the adviser's self-assessment. Submitted by: Jianping Li (Individual Commenter)