Oct. 23, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets." While I appreciate the SEC's effort to enhance investor protections and address gaps in the custody rule, I believe there are certain aspects of the proposal that require further clarity and consideration. One area of concern is the lack of clarity on compliance requirements for non-custodial services. The proposal does not provide clear guidance on how investment advisers should comply with the rule in situations where they do not have custody of client assets. This creates uncertainty for market participants and may result in inconsistent interpretations and expectations. It is crucial for the SEC to provide clear compliance guidelines for non-custodial services to ensure consistent and effective implementation of the rule. Furthermore, I am deeply concerned about the confusion caused by the proposed reporting requirements for decentralized finance (DeFi) participants. The regulations introduce reporting obligations for a broad range of participants in DeFi, including those who may be engaged in the same transaction. This could result in multiple, inconsistent reports being generated for the same transaction, creating a burdensome and inefficient reporting process. The SEC should strive to provide clear and streamlined reporting requirements for DeFi participants to avoid unnecessary complexities and ensure accurate reporting. In addition to these specific concerns, I believe it is important for the SEC to carefully consider the economic impact of the proposed rule. While enhancing investor protections is a priority, it is essential to assess the potential costs and benefits of the rule amendments. Compliance costs for investment advisers could vary significantly depending on their current custodial practices and existing controls. The SEC's economic analysis should thoroughly evaluate the potential impact on efficiency, competition, and capital formation to ensure that the proposed rule strikes an appropriate balance. Moreover, I would like to express my support for the SEC's consideration of reasonable alternatives to the proposed rule. It is critical to encourage open dialogue and exploration of alternative approaches that may achieve the same objectives while minimizing unintended consequences. I encourage the SEC to actively seek public input on potential alternatives and consider overlooked benefits and costs associated with the proposed rule. In conclusion, I urge the SEC to address the lack of clarity on compliance requirements for non-custodial services and ensure streamlined reporting obligations for DeFi participants. Additionally, I encourage the Commission to conduct a comprehensive economic analysis and consider reasonable alternatives to the proposed rule. These steps will help to maximize investor protections while minimizing unnecessary burdens and unintended consequences in the investment advisory industry. Thank you for considering my concerns and taking them into account as you carefully evaluate the feedback and comments submitted regarding the proposed rule "Safeguarding Advisory Client Assets." Sincerely, Jonathan Breitling