Oct. 22, 2023
Dear [Regulatory Agency], I am writing to provide my public comment on the proposed rule titled "Safeguarding Advisory Client Assets" (Release No. IA-######) from the Securities and Exchange Commission (SEC). While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I have some concerns and issues that I would like to bring to your attention. One area of concern is the inconsistent regulatory treatment of utility tokens. The proposal fails to provide consistent regulatory guidance for utility tokens, which can lead to confusion and potential regulatory arbitrage. As utility tokens serve different purposes within various platforms and networks, a one-size-fits-all approach may not be suitable. Clarity and precision are necessary in defining the regulatory framework for utility tokens to ensure fair treatment and avoid unintended consequences. Furthermore, I find that the proposed regulations suffer from poorly defined terms. The use of undefined terms, such as "platform," "software," and "ledger," introduces ambiguity and leaves room for multiple interpretations. Moreover, the definitions of other terms, like "wallet" and "validator," do not align with their technical meaning, further contributing to confusion among market participants. It is essential to provide clear and concise definitions that accurately capture the essence of each term to facilitate compliance and prevent unintended consequences. In addition to the above concerns, I believe there are other areas that warrant further consideration. The proposed rule claims to prioritize the protection of client assets, but it must strike a careful balance to avoid imposing undue burdens on investment advisers. Compliance with the rule may lead to increased costs for advisers, especially those managing client assets worth trillions of dollars. It would be helpful if the SEC could provide a more detailed cost-benefit analysis, taking into account the potential impact on advisory services, competition, and compliance costs for qualified custodians. Moreover, the proposal's transition period and compliance dates should be carefully evaluated to ensure sufficient time for advisers to adapt to the new requirements. Clear and practical guidelines during the transition period would assist advisers in understanding and implementing the rule effectively. Furthermore, it is crucial to consider the broader economic effects of the proposed rule. It is undeniable that regulations play a vital role in addressing principal-agent problems and market failures. However, it is equally important to evaluate if the proposed safeguards strike an optimal balance between investor protections and market efficiency. As regulation can impact the efficiency of investments and capital formation, assessing the potential effects on competition and economic growth is essential. Finally, I would like to emphasize the importance of public input and engagement in shaping the final rule. The SEC's request for comments on reasonable alternatives and potential overlooked benefits and costs is commendable. I encourage the agency to actively consider and address the feedback received from market participants and stakeholders. Thank you for considering my concerns and suggestions regarding the "Safeguarding Advisory Client Assets" proposal. I appreciate the SEC's commitment to improving investor protections and look forward to the agency's continued efforts in creating a fair and transparent regulatory environment. Sincerely, Asi Hassan