Oct. 22, 2023
I am writing to provide my comments on the proposed rule "Safeguarding Advisory Client Assets" by 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 concerns regarding the potential overreach of regulatory authority. First and foremost, it is important to ensure that the SEC's regulatory actions align with its designated authority. There is a risk that the proposed rule may exceed the SEC's role, encroaching on areas that should be regulated by other agencies. The SEC should carefully consider the jurisdictional boundaries and consult with relevant agencies to avoid duplicative or conflicting rules. Moreover, it is essential to recognize the diverse nature of investment products and the varied regulatory frameworks that govern them. The proposed rule seeks to expand the coverage to include a broader range of investments held in a client's account. However, this expansion may inadvertently result in regulatory burdens that hinder innovation and restrict access to certain investment opportunities. The SEC should ensure that its rulemaking strikes the right balance between investor protection and fostering a vibrant and competitive marketplace. I must also highlight the potential challenges associated with the custody of crypto assets. While the rule attempts to address these challenges, it is important to approach this new and rapidly evolving asset class with caution. The SEC must exercise prudence in its rulemaking to prevent stifling innovation and potential economic benefits that crypto assets can bring. Additionally, I raise concerns about the increased compliance costs that investment advisers may bear as a result of the proposed rule. It is important to consider the burden on smaller investment advisers, as their resources may be disproportionately strained by compliance requirements. The SEC should carefully assess the potential economic impact, particularly on small entities, and consider proportionate regulatory measures that achieve the desired investor protection outcomes without imposing undue burdens. Furthermore, the SEC's proposal to require written agreements with independent public accountants for surprise examinations raises practical concerns. While surprise examinations can play a crucial role in safeguarding client assets, the proposed requirement may impose significant administrative burdens on investment advisers. The SEC should explore alternative mechanisms to achieve the same objective without placing an undue burden on advisers and impeding their ability to serve their clients effectively. Finally, I urge the SEC to thoroughly analyze the economic impact of the proposed rule, including both qualitative and quantified assessments. It is crucial to carefully consider the costs and benefits of the rule, as well as the potential effects on efficiency, competition, and capital formation. Additionally, the SEC should seek public input on the economic analysis and solicit opinions on overlooked benefits and costs. This collaborative approach will ensure that the rule strikes the right balance between investor protection and a vibrant investment ecosystem. In conclusion, I appreciate the SEC's attention to safeguarding client assets and strengthening investor protections. However, I urge the Commission to carefully consider the potential overreach of regulatory authority, the impact on innovation and competition, the burdens on small entities, and the economic implications of the proposed rule. Open and transparent rulemaking processes, coupled with stakeholder engagement, are essential for striking the appropriate regulatory balance and ensuring the rule achieves its intended objectives. Thank you for considering my comments. If there are any additional areas of concern that require public comment, please do not hesitate to reach out. Additionally, I would be happy to address any general questions related to the proposal.