Oct. 25, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule titled "Safeguarding Advisory Client Assets." While I recognize the importance of investor protections and acknowledge the need to address gaps in the custody rule, I have several concerns regarding the proposed rule's impact on privacy, security, and technical definitions. First and foremost, the proposal does not adequately address the privacy and security concerns associated with the custody of digital assets. In an increasingly digital world, where the use of blockchain technology and cryptocurrencies is becoming more prevalent, it is crucial to have robust safeguards in place. However, the proposed rule falls short in this regard. The lack of clear guidelines for the custody of digital assets puts investors' assets at risk and leaves them vulnerable to potential breaches or hacks. As investors' financial well-being depends on the security of their assets, it is imperative that any new rule adequately addresses these concerns. Furthermore, the proposed regulations suffer from poorly defined terms. The use of vague terms like "platform," "software," and "ledger" leaves room for ambiguity and multiple interpretations. This lack of precise definitions may lead to inconsistencies in how the rule is applied, which can lead to confusion and potential loopholes. Additionally, the proposed rule's definitions of terms such as "wallet" and "validator" do not accurately describe their technical meaning. This mismatch between industry terminology and the rule's definitions could result in unintended consequences and hinder effective regulation. In addition to these specific concerns, I would like to highlight the potential unintended negative consequences of the proposed rule. One potential consequence is the possibility of discouraging innovation within the investment advisory industry. The lack of clarity on how the rule applies to emerging technologies and digital assets might create uncertainty and deter investment advisers from exploring new avenues and innovative approaches. This could impede progress in the industry and limit opportunities for investors. Moreover, the proposed rule may inadvertently reduce transparency. It is important to strike a balance between safeguarding client assets and maintaining transparency in the investment advisory process. Excessive regulatory requirements can introduce complexity and increase the administrative burden on advisers, potentially hampering transparency and making it more challenging for investors to understand the custody arrangements for their assets. A more nuanced approach that ensures investor protections without overly burdening advisers would be more beneficial. Lastly, the proposed rule may create new risks rather than mitigate existing ones. The current formulation of the rule could inadvertently incentivize the use of certain custody arrangements that increase operational and security risks. By favoring certain custody models while disregarding others, the rule might inadvertently push advisers towards adopting less secure custodial methods, thereby compromising investor assets. It is crucial to carefully consider and evaluate all possible scenarios to avoid inadvertently increasing risks rather than reducing them. In conclusion, while the proposed rule on safeguarding advisory client assets offers important enhancements to investor protections, my concerns regarding the privacy and security of digital assets, poorly defined terms, and potential unintended consequences warrant careful consideration. I urge you to ensure that any final rule adequately addresses these concerns and strikes a balance between investor protection, regulatory clarity, and encouraging innovation within the advisory industry. Thank you for considering my comments on this proposed rule. Please feel free to reach out if you need any further clarification or additional input. Sincerely, Damien