Oct. 20, 2023
November 19, 2022 Securities and Exchange Commission 100 F Street, NE Washington, DC 20549-1090 RE: Safeguarding Advisory Client Assets - File Number S7-10-21 Dear SEC I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets" as outlined in File Number S7-10-21. While I understand the Securities and Exchange Commission's (SEC) intention to enhance investor protections and address gaps in the custody rule, I believe there are certain areas where the proposed rule may overreach its regulatory authority and impose unnecessary burdens on investment advisers. Specifically, my concerns lie in the following areas: Potential Overreach of Regulatory Authority: The SEC's proposed rule appears to encroach on areas that should fall under the purview of other regulatory agencies. As a result, there is a risk of duplication and conflicting requirements that may further burden investment advisers. It is essential that regulatory authority, responsibilities, and oversight are clearly delineated to avoid confusion and ensure effective and efficient regulation. Poorly Defined Terms: The proposed regulations employ certain terms that lack adequate definitions, leading to ambiguity and confusion. Terms such as "platform," "software," and "ledger" are susceptible to multiple interpretations, opening the door to inconsistent implementation and potential legal disputes. Similarly, the definitions provided for terms like "wallet" and "validator" do not accurately reflect their technical meaning, adding further confusion to the rule's application. A lack of precise and consistent terminology undermines the rule's effectiveness and fairness. Moreover, it is crucial to analyze the economic impact of the proposed rule to safeguard investor protections without unnecessarily imposing burdens on investment advisers and qualified custodians. While the proposed safeguards show promise in enhancing investor protection, regulatory requirements need to strike the right balance in promoting efficiency, competition, and capital formation. To achieve this, I recommend careful consideration of the following additional concerns: Regulatory Burden and Compliance Costs: The proposed rule will inevitably impose additional compliance obligations on investment advisers and qualified custodians. It is important to carefully assess the magnitude of these burdens, especially considering the varying custodial practices and existing controls within the industry. Any undue financial burden placed on advisers may stifle competition and innovation while diverting focus away from core client services. Reasonable Alternatives: The SEC's openness to comments on reasonable alternatives highlights the importance of considering less burdensome yet equally effective approaches to achieve investor protection and regulatory oversight. It is imperative that the proposed rule strikes the right balance between safeguarding client assets and minimizing unnecessary compliance costs. In conclusion, while I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I strongly urge the Commission to reconsider certain aspects of the proposed rule. By ensuring regulatory authority is exercised appropriately, providing clear and precise definitions, and carefully weighing the economic impact, the SEC can strike a balance between investor protection and enabling the advisory industry to thrive. Thank you for considering my comments. I offer my assistance and look forward to participating in any further discussions regarding this important rule proposal. Please feel free to reach out to me if there are any questions or if further clarification is needed. Sincerely, Daniel