Oct. 23, 2023
Dear Securities and Exchange Commission, I am writing to provide my comment on the proposed rule, "Safeguarding Advisory Client Assets." While I acknowledge the importance of enhancing investor protections and addressing gaps in the custody rule, I have several concerns and issues with the current proposal that I would like to bring to your attention. One key concern I have is the insufficient cybersecurity requirements for custodians, particularly in relation to digital assets. In today's digital age, where the majority of financial transactions are conducted electronically, it is crucial to ensure robust cybersecurity measures are in place to protect client assets from theft and fraud. Unfortunately, the proposed rule fails to impose stringent cybersecurity requirements on custodians of digital assets, leaving room for potential vulnerabilities and increasing the risk of asset loss. In order to truly enhance investor protections, it is imperative that the SEC establishes clear and comprehensive cybersecurity standards for custodians of all asset types, including digital assets. Another concern I have is the poorly defined terms used in the proposed regulations. For instance, terms like "platform," "software," and "ledger" are left undefined, making them susceptible to various interpretations and potentially leading to confusion and inconsistent application of the rule. Furthermore, the definition of other terms, such as "wallet" and "validator," does not accurately reflect their technical meaning, further adding to the confusion. In order to ensure effective compliance and enforcement, it is essential that the SEC provides precise definitions for all relevant terms to eliminate any ambiguity and promote consistency in the implementation of the rule. Additionally, I believe it is crucial to strike a balance between investor protections and compliance costs for advisers and custodians. While the proposed rule aims to strengthen safeguards for client assets, it is important to assess the potential economic impact and burdens imposed on industry participants. It is essential that the SEC considers reasonable alternatives that would achieve the desired investor protections without placing an undue burden on investment advisers and custodians. By carefully evaluating the costs and benefits of the proposed rule, the SEC can ensure that the regulatory framework strikes the right balance between investor protection and business operations. Furthermore, I believe the SEC should place greater emphasis on transparency and accountability. With the proposed changes to Form ADV, there is an opportunity to enhance disclosure requirements and promote greater transparency regarding custody of client assets. By requiring advisers to report custody of client assets and providing information about custodians and accountants involved in safeguarding these assets, investors will have greater visibility into the management of their investments and the protections in place. This increased transparency will not only promote investor confidence but also enable effective regulatory oversight. In conclusion, while I support the intention behind the proposed rule to enhance investor protections and address gaps in the custody rule, I have concerns regarding the insufficient cybersecurity requirements for custodians and the use of poorly defined terms. I also urge the SEC to carefully consider the economic impact and burdens imposed on investment advisers and custodians, as well as the need for greater transparency and accountability in the industry. I appreciate the SEC's efforts in soliciting public comments and urge you to consider these points in the final rulemaking process. Thank you for considering my comments. Sincerely, Nicholas Ciani, Esq. Ciani Law, PLLC 1529 NE 17 Ter. Fort Lauderdale, FL 33304 Direct: (954) 654-4445 Confidentiality Notice: this message is being sent by or on behalf of a lawyer. It is intended exclusively for the individual or entity to which it is addressed. This communication may contain information that is proprietary, privileged, confidential or otherwise legally exempt from disclosure. If you are not the named addressee, you are not authorized to read, print, retain, copy or disseminate this message or any part of it. If you have received this message in error, please notify the sender immediately by e-mail and delete all copies of the message.