Oct. 14, 2023
I hope this message finds you well. I am writing to express some concerns regarding the recent proposal titled “Safeguarding Advisory Client Assets”. While I understand and appreciate the Commission’s intent to enhance the protection of client assets and ensure greater transparency and accountability within the industry, I believe it’s crucial to address potential challenges and unintended consequences this proposal may pose for the digital assets ecosystem. 1. Broad Interpretation Risks: The proposal, as currently articulated, does not offer specific guidance on digital assets like cryptocurrencies. A broad interpretation could lead to ambiguity, resulting in inconsistent practices and potentially jeopardizing the safety of digital assets under advisers’ custody. 2. Operational and Technological Challenges: Digital assets inherently differ from traditional financial assets. Subjecting them to traditional custody rules can create operational challenges. For instance, the annual verification process by independent public accountants may not be directly applicable or effective for assets secured in cryptographic wallets. We need rules that recognize and are tailored to the unique technological aspects of digital assets. 3. Potential for Innovation Stifling: Overly stringent regulations can inadvertently deter investment advisers from offering digital assets as part of their portfolio, thereby limiting market growth and innovation. This might hamper the U.S.’s competitive edge in the rapidly evolving digital finance landscape. 4. Security Vulnerabilities: Mandating certain access or reporting requirements without a deep understanding of the digital asset security landscape could inadvertently increase the risk of unauthorized access or hacks, putting investors’ assets in jeopardy. 5. International Standards Misalignment: The digital asset ecosystem is inherently global. It is essential to ensure that any regulations developed take into consideration international standards and practices, to avoid creating undue challenges for international entities and investors. 6. People’s Freedom and Autonomy: One of the foundational principles of blockchain and digital assets is to provide individuals with greater autonomy and control over their assets and transactions. Regulations that don’t account for this ethos may inadvertently infringe upon people’s freedom and the decentralized spirit of blockchain. In conclusion, while the objectives of the “Safeguarding Advisory Client Assets” proposal are commendable, I strongly urge the Commission to consider the unique nature of digital assets. Engaging with industry experts, blockchain technologists, and digital asset custodians would provide invaluable insights and ensure that the final regulations are both robust and flexible enough to accommodate the rapidly evolving digital asset landscape. Thank you for your attention to this matter. I am confident that with thoughtful deliberation and collaboration, we can arrive at regulations that protect investors while fostering innovation and upholding the principles of the blockchain community. Warm regards, Marc DeBlasie