Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule titled "Safeguarding Advisory Client Assets." While I commend the SEC for its ongoing efforts to enhance investor protections and address gaps in the custody rule, I have concerns regarding the lack of industry expertise in drafting the proposal, particularly in relation to the regulation of digital assets and cryptocurrency. It is essential to recognize that digital assets, such as cryptocurrency, are a rapidly evolving asset class that has the potential to revolutionize the financial industry. The unique characteristics of these assets, built on blockchain technology, demand a nuanced understanding that extends beyond traditional regulatory frameworks. However, the proposed rule does not adequately demonstrate this understanding. By not consulting industry experts well-versed in the intricacies of digital assets, the SEC risks implementing regulations that could stifle innovation and hinder the growth of this transformative technology. Comprehensive regulations must strike a balance between protecting investors and promoting innovation, and this can only be achieved through collaboration and knowledge sharing with those who possess expertise in the field. Furthermore, the lack of clear guidance on how the proposed rule would apply to digital assets and cryptocurrency raises concerns of arbitrary enforcement and regulatory uncertainty. Ambiguities surrounding the demonstration of exclusive control over these assets, for example, could create confusion and hinder regulatory compliance for investment advisers handling digital assets on behalf of their clients. It is imperative for the SEC to engage with experts, market participants, and industry professionals possessing in-depth knowledge of the unique attributes and challenges of digital assets and cryptocurrency. By doing so, the proposed rule can better cater to the needs and realities of this emerging sector. In addition to addressing the issue of industry expertise, I would also like to comment on the broader aim of the proposed rule. While investor protection is undoubtedly a paramount goal, it is crucial to recognize the potential benefits that digital assets and cryptocurrency offer to investors and the wider financial ecosystem. These innovative technologies have the potential to increase access to financial services, reduce costs, and enhance efficiency. Any regulation, including the proposed rule, should be tempered with a fair assessment of the trade-offs between risk and reward. Blanket regulations that fail to distinguish between different types of digital assets and their associated risks may impede growth and stifle innovation. This could ultimately limit the benefits that investors stand to gain from embracing these transformative technologies. In conclusion, I urge the SEC to reconsider and address the lack of industry expertise in the drafting of the proposed rule. Enhancing collaboration with industry experts and acknowledging the unique characteristics of digital assets and cryptocurrency will help pave the way for regulations that foster innovation, protect investors, and facilitate the continued growth of this rapidly evolving sector. Thank you for considering my public comment on this vital issue. Sincerely, Jonathan Kavanagh