Oct. 23, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I understand the intention to enhance investor protections and address gaps in the custody rule, I believe that the current proposal lacks flexibility for innovative custodial solutions, particularly in the digital asset industry. One of the key issues with the proposed rule is its failure to provide a framework that accommodates the unique characteristics of digital assets and emerging custodial solutions. The digital asset industry is rapidly evolving, and traditional custodial arrangements may not always be suitable or practical for these assets. By not considering alternative custodial solutions, the proposed rule risks stifling competition and hindering progress in this innovative and important sector. In recent years, the development of blockchain technology has paved the way for decentralized custodial solutions that offer enhanced security, transparency, and efficiency. These solutions, such as smart contract platforms and decentralized finance protocols, can provide robust safeguards for client assets in a decentralized manner. However, the proposed rule does not adequately address these innovative custodial solutions, leading to an unnecessary limitation on investor choice and impeding the growth of the digital asset industry. Furthermore, the lack of flexibility in the proposed rule may discourage investment advisers from exploring and utilizing emerging custodial technologies. This could result in a competitive disadvantage for the United States in the global digital asset landscape, as other jurisdictions may adopt more progressive approaches to regulatory frameworks for digital assets and custody. In order to foster innovation and promote competition, I urge the SEC to revise the proposed rule to incorporate a flexible framework that allows for innovative custodial solutions. This could be achieved by establishing principles-based requirements that focus on the outcome and effectiveness of safeguarding client assets, rather than prescribing specific custodial arrangements. It is also important to engage with industry stakeholders, including digital asset custodians and blockchain experts, to ensure that any regulatory framework strikes the right balance between investor protection and fostering innovation. This collaborative approach will enable the SEC to develop rules that not only safeguard investor assets but also support the growth and competitiveness of the digital asset industry. In conclusion, while I appreciate the SEC's efforts to enhance investor protections through the proposed rule, I strongly believe that it needs to consider and accommodate innovative custodial solutions in the digital asset industry. By doing so, the SEC can establish a forward-thinking regulatory framework that promotes investor confidence, encourages competition, and facilitates the development of cutting-edge custodial technologies. Thank you for considering my concerns. I urge the SEC to carefully evaluate the potential benefits of flexible custodial solutions and engage in a constructive dialogue with industry stakeholders to ensure that the final rule addresses the unique challenges and opportunities in the digital asset industry. Sincerely, Nigel M