Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on the safeguarding of advisory client assets. While I understand the intention to enhance investor protections and address gaps in the custody rule, I believe there are several areas where the proposed rule falls short, particularly in the context of digital assets or crypto. First and foremost, there is an absence of regulatory clarity for security tokens, which are digital assets that have been labeled as securities. The proposal fails to provide clear guidelines on how investment advisers should handle and safeguard these assets. As a result, uncertainty looms over the industry, hindering investor protection and stifling innovation. It is crucial for the SEC to provide comprehensive and consistent regulatory frameworks to foster the development of security tokens while ensuring the necessary safeguards are in place to protect investors. Additionally, the proposed rule does not adequately address the unique challenges posed by digital assets and crypto. These assets, built on blockchain technology, have fundamentally transformed the financial landscape and require tailored regulatory considerations. The lack of specific guidance for custody, exclusive control, and safeguarding of digital assets undermines investor confidence and poses risks to the overall market integrity. It is essential for the SEC to adapt its regulatory approach to effectively handle these new technological advancements to ensure investor protection while fostering innovation and growth. Furthermore, the economic analysis presented in the proposal lacks a comprehensive assessment of the potential benefits and costs associated with the proposed rule, particularly when it comes to digital assets. The analysis fails to fully account for the potential impact on capital formation, competition, and efficiencies in the digital asset space. By not conducting a thorough evaluation of these aspects, the SEC risks undervaluing the potential benefits while overestimating the costs associated with protecting client assets. In order to address these concerns, I urge the SEC to revisit the proposed rule and provide clear regulatory guidelines for security tokens. The SEC should also collaborate with industry stakeholders and experts to develop appropriate mechanisms for safeguarding digital assets while preserving investor protection. Additionally, the economic analysis should be expanded to comprehensively evaluate the impact on the economy, efficiency, competition, and capital formation in the context of digital assets. I appreciate the SEC's efforts to enhance investor protections through this rulemaking process. However, it is crucial that the proposed rule reflects the rapidly evolving landscape of digital assets and addresses the regulatory uncertainties surrounding this space. By doing so, the SEC can effectively protect investors while fostering innovation and growth in the advisory industry. Thank you for considering my comments on this important matter. Sincerely, Mike