Oct. 23, 2023
Public Comment on SEC Proposal - Safeguarding Advisory Client Assets Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on safeguarding advisory client assets. While the objective of enhancing investor protections and addressing gaps in the custody rule is commendable, there are certain aspects of the proposed regulations that require careful consideration and revision. One area of concern is the unequal treatment of different types of digital assets. The proposed rules seem to treat various digital assets inconsistently, which could lead to confusion and potential regulatory arbitrage. It is crucial to establish a clear and consistent framework that provides equal treatment and regulation for all types of digital assets. This not only ensures a level playing field for investors and custodians but also fosters innovation and growth in the digital asset space. Moreover, the proposed rules contain poorly defined terms, causing ambiguity and confusion. For instance, terms such as "platform," "software," and "ledger" lack clear definitions and are susceptible to a vast range of interpretations. This ambiguity creates challenges for both investment advisers and regulators trying to comply with and enforce the rules effectively. To minimize confusion and promote regulatory certainty, it is essential to provide concise definitions that capture the technical meaning of terms. Similarly, terms like "wallet" and "validator" are defined in a manner that deviates from their technical understanding. Such inconsistencies can lead to misunderstandings and misinterpretations, hindering effective compliance. To ensure a comprehensive and clear understanding of these terms, it is crucial to align their definitions with common industry practices and technical meanings. This would facilitate consistent application and interpretation of the rules, reducing undue burden and confusion. Furthermore, the economic analysis accompanying the proposed rule raises concerns. While acknowledging the challenge of estimating economic effects due to varying practices among investment advisers, it is essential to conduct a thorough and comprehensive analysis. To ensure the rules promote both investor protection and industry growth, it is crucial to assess potential unintended consequences and identify any areas where adjustments may be necessary to achieve a fair balance. In addition, the proposed rule's compliance costs for small entities warrant attention. While the SEC has considered the impact on small advisers, it is essential to carefully evaluate the potential burden placed upon them. Any compliance requirements that disproportionately affect small entities could hinder competition and inhibit the ability of smaller advisers to serve their clients effectively. Balancing investor protection with the capacity of small entities is vital to maintain a diverse and competitive advisory industry. In conclusion, I appreciate the efforts made by the Securities and Exchange Commission in proposing the rule to safeguard advisory client assets. However, it is crucial to address the concerns raised regarding the inconsistent treatment of different types of digital assets, the poorly defined terms, and the economic impact on small entities. By refining these aspects of the proposed rule, we can ensure that investor protections are maximized, while also fostering innovation and competition within the advisory industry. Thank you for considering my comments on this important matter. I believe that by working together, we can create a regulatory framework that harmonizes investor protection, clarity, and industry growth. Sincerely, Jack