Oct. 23, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" from the agency. While I acknowledge the SEC's efforts to enhance investor protections and address gaps in the custody rule, there are several concerns that I would like to bring to your attention. Firstly, I believe that the proposed rule does not adequately consider the unique characteristics of smart contracts. As digital assets such as cryptocurrencies continue to emerge and transform the finance industry, smart contracts are becoming increasingly prevalent. However, the proposal fails to address the regulatory challenges and potential legal uncertainties posed by smart contracts. It is essential for the SEC to adapt its regulations to encompass the use of smart contracts and ensure that investors are adequately protected in this rapidly evolving digital landscape. Furthermore, I would like to emphasize the need for robust regulations regarding digital assets and crypto assets. These assets, built on innovative blockchain technology, have the potential to revolutionize the financial industry. However, the current regulatory uncertainties surrounding digital assets create challenges for both investors and market participants. It is crucial for the SEC to develop clear guidelines and regulations that provide certainty and promote the responsible and secure use of digital assets. This will not only protect investors but also encourage innovation and growth in this emerging sector. In addition to these concerns, I also have specific questions and suggestions regarding certain aspects of the proposed rule. For example, I request further clarification on the scope of the rule and its application to various types of investments held in a client's account. It is important to strike a balance between investor protections and the ability of investment advisers to effectively manage and safeguard client assets. Moreover, I would like to inquire about the specific measures being implemented to mitigate the risks associated with the custody of assets that cannot be maintained with a qualified custodian. The proposal mentions enhanced recordkeeping, separation of duties, and regular reviews, but additional details would be beneficial. Clear guidelines are necessary to ensure that investment advisers have appropriate safeguards in place for these assets. Furthermore, I would like to urge the SEC to review and potentially withdraw certain staff no-action letters and statements regarding the custody rule, as mentioned in the proposal. It is advisable to reassess the relevance and effectiveness of these letters and statements in light of the proposed rule amendments. Lastly, I agree with the proposed transition period and compliance dates to allow investment advisers sufficient time to adapt to the new rule. However, I encourage the SEC to provide additional guidance and support during this transition period to ensure a smooth implementation and minimize any potential disruptions for investment advisers and their clients. Overall, I appreciate the SEC's efforts to enhance investor protections through the proposed rule. However, it is crucial to address the concerns and considerations I have highlighted, especially regarding smart contracts and digital assets. By taking these factors into account and implementing clear and comprehensive regulations, the SEC can not only protect investors but also foster innovation and growth in the financial industry. Thank you for considering my comments. I look forward to further discussions and collaborations to promote a secure and thriving investment environment. Sincerely, Hillary Deenson