Oct. 14, 2023
Dear Chair Gensler, I am writing to voice my serious concerns and objections to the proposed rule by the U.S. Securities and Exchange Commission (the Commission) titled “Safeguarding Advisory Client Assets”. My worries are based on various analyses that underscore potential adverse effects and overarching problems that the proposal could trigger across multiple sectors of the U.S. financial markets. 1. Potential Regulatory Overreach and Disruption of CFTC-Regulated Entities: The proposal could unintentionally regulate entities under the Commodity Futures Trading Commission (CFTC), potentially destabilizing the U.S. derivatives and commodities markets and putting our nation’s farmers and producers at risk. The apparent absence of collaboration with the CFTC, the main regulator of the U.S. derivatives markets, is concerning, given these markets’ crucial role in our economy and their facilitation of risk management and price discovery. 2. Potential Disruption to Derivatives Markets and Advisory Clients: The proposal could interfere with futures commission merchants, commodity trading advisors, commodity pool operators, and swap dealers’ ability to facilitate access to derivatives markets, despite these entities already complying with stringent customer protection rules set by the CFTC. It could also impede advisory clients’ ability to enter into swaps contracts, contradicting a decade of decision-making and coordination by domestic and international market and banking regulators. 3. Negative Impact on Commodity Markets: The proposal could negatively affect commodity markets, including agricultural, energy, and digital commodities, by mandating an impractical verification process for each commodity transaction, potentially causing systemic damage to the U.S. economy. 4. Contradiction with Investor Protection Goals: While the aim of ensuring high levels of investor protection is praiseworthy, the proposal seems to conflict with this goal by potentially causing various adverse effects on investors, including limiting their access to various services, assets, and markets with well-established rules. 5. Economic and Jurisdictional Issues: The proposal significantly deviates from traditional custody practices, dramatically increasing custodial services’ cost, and uses the SEC’s authority over registered investment advisors (RIAs) to regulate entities outside its jurisdiction. 6. Reformation of Traditional Custody Practices and Impact on Digital Assets: The proposal would fundamentally alter traditional custody practices for market participants. The asset-neutral approach and other requirements could undermine banks’ most basic functions, such as holding cash, and have particularly detrimental impacts on the digital asset ecosystem. Given these concerns’ severity and the potential for broad impact across various sectors, I strongly urge the Commission to reconsider this proposal. I firmly believe that the CFTC’s regulatory framework promotes resilient markets that agriculture stakeholders—and American businesses more broadly—depend on. Any proposal that affects liquidity and customer protections in those markets is unacceptable. I strongly recommend that any future proposals be carefully considered to avoid unintended consequences. Sincerely, Concerned Patriot