Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing this public comment in response to the proposed rule on "Safeguarding Advisory Client Assets". While I appreciate the efforts made to enhance investor protections and address gaps in the custody rule, there are certain concerns that I believe need to be addressed in order to ensure a fair and effective regulatory framework. One area of concern that I would like to highlight is the lack of clarity surrounding the definition of digital assets. The proposal fails to provide clear guidance on what constitutes a digital asset, leading to confusion and potential misinterpretation. As digital assets, particularly cryptocurrencies, continue to transform the financial landscape, it is crucial for regulatory frameworks to keep pace with these advancements. Consequently, the definition of digital assets should be unambiguous and comprehensive to avoid any unintended consequences or regulatory gaps. It is important to recognize that digital assets, such as cryptocurrencies, are primarily built on blockchain technology. These technological innovations hold great promise for fostering financial inclusion and revolutionizing traditional financial systems. Therefore, it is essential for lawmakers to understand that cryptocurrency is fundamentally code – code that enables freedom of expression and economic agency for individuals. By failing to provide clear guidance on the definition of digital assets, the proposed rule risks stifling innovation and placing unnecessary burdens on the emerging digital asset industry. It is imperative to strike a balance between investor protection and regulatory clarity to enable further growth and development in this space. Additionally, I appreciate the SEC's efforts to assess the costs and benefits of the proposed rule amendments. While the economic analysis provided offers some insights, it is important to acknowledge the unique challenges posed by estimating the economic effects of the proposed regulations. Investment advisers and custodians operate in a diverse and evolving landscape, with varying practices and controls. An overly burdensome and one-size-fits-all approach to compliance may disproportionately impact smaller advisory firms and hinder capital formation. Careful consideration should be given to the potential adverse consequences, and alternative approaches that achieve the same investor protection goals should be explored. In one particular area, the proposed rule addresses the need for investment advisers to notify clients in writing when opening an account with a custodian. This step is essential to ensure transparency and help clients verify the custody arrangements for their assets. However, it is crucial to strike the right balance so that the required notification does not become overly burdensome or repetitive for advisers. Consideration should be given to utilizing technology and electronic notification mechanisms to streamline this process and reduce administrative burdens. Furthermore, the proposal introduces amendments to the surprise examination requirement, aiming to enhance the safeguarding of client assets. While these changes have the potential to increase investor confidence, it is important to ensure that the compliance costs associated with these amendments are reasonable and proportionate. Overly onerous requirements may hinder smaller advisory firms or create unnecessary redundancies in cases where robust controls and safeguards are already in place. In conclusion, I urge the SEC to carefully consider the concerns raised in this public comment. It is essential to strike the right balance between investor protection, regulatory clarity, and fostering innovation in the digital asset industry. By ensuring a comprehensive and unambiguous definition of digital assets and assessing the economic consequences of proposed rule amendments, the SEC can achieve its objectives while minimizing unintended adverse effects. Thank you for your attention to these matters. If there are any other areas of concern that I can address or if you have further questions about the proposal, please do not hesitate to reach out. Sincerely, Stephanie Wood