Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on Safeguarding Advisory Client Assets. While I understand the need for enhanced investor protections and the addressing of gaps in the custody rule, I believe that there are several issues that need to be considered in order to ensure effective regulation without stifling innovation and privacy rights. One area of concern is the inadequate consideration of the unique properties of cryptocurrency. The SEC's proposal does not account for the decentralized nature and technological complexities of cryptocurrencies, which can make it difficult to apply traditional regulatory requirements. By not taking into account the characteristics of cryptocurrency, the proposed rule may impose impractical regulations that hinder the industry's growth and development. In particular, I am concerned about the potential impact of the proposed regulations on privacy rights, especially given the increasing use of digital assets for anonymous transactions. While it is important to ensure compliance with tax laws and prevent illicit activities, it is equally vital to protect individual privacy. The SEC should engage in further discussion on measures that can be taken to strike a balance between safeguarding assets and respecting privacy rights. Moreover, I believe it is essential for the SEC to solicit expert input and collaborate with industry professionals in order to fully understand the complexities of digital assets. Given their rapid rise in popularity and transformative potential for the finance industry, it is crucial to engage in thoughtful dialogue with industry stakeholders to develop regulations that have both a robust investor protection foundation and a flexibility that allows for continued innovation. Additionally, I am concerned about the compliance costs associated with the proposed rule. The SEC's economic analysis acknowledges that these costs will vary depending on current custodial practices and existing controls. It is essential that the SEC provides a framework for compliance that is not unduly burdensome, especially for smaller investment advisers. A proportionate approach should be taken to ensure that regulatory requirements do not disproportionately benefit larger firms or hinder the growth of smaller entities. In conclusion, while I appreciate the SEC's efforts to enhance investor protections in the advisory industry, I believe that more considerations need to be given to the unique properties of digital assets, such as cryptocurrency. In particular, the privacy rights of individuals and the impact of the proposed rule on compliance costs for smaller advisers should be carefully addressed. I urge the SEC to seek further consultation with industry experts, engage in meaningful dialogue, and consider reasonable alternatives to develop a balanced and effective regulatory framework. Thank you for considering my comment. Sincerely, Mathew Lopez