Oct. 25, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets." While I commend the SEC's efforts to enhance investor protections and address gaps in the custody rule, there are several concerns that need to be addressed in the proposed rule. One area of concern is the insufficient consideration of privacy coins. The proposed rules do not adequately take into account the unique characteristics of privacy coins, potentially hindering their development and adoption. Privacy coins offer enhanced anonymity and privacy features, which can be appealing to certain investors. It is essential for the SEC to carefully consider the regulatory implications of privacy coins to strike the right balance between investor protection and innovation. Additionally, the proposed rule touches upon the topic of digital assets or cryptocurrencies, which have been transforming the financial landscape. However, regulatory uncertainties surrounding digital assets pose significant challenges. It is crucial that the SEC provides clearer guidance on the treatment of digital assets, taking into account their distinct characteristics and potential benefits. Furthermore, I have concerns about the potential impact of the proposed rule on small advisers. While most small advisers registered with state authorities will not be affected, around 522 SEC-registered advisers, out of which 321 have custody of client assets, would be subject to the proposed rule. It is essential to ensure that the compliance requirements are reasonable and proportionate for small advisers, as they may face significant financial burdens. In considering the economic analysis of the proposed rule, it is vital to recognize the potential benefits and costs. While the rule aims to enhance investor protections by reducing asset loss risk, advisers will incur compliance costs. However, the magnitude of these costs will depend on the current custodial practices and existing controls of each adviser. Thus, it is important for the SEC to carefully evaluate the potential impact on efficiency, competition, and capital formation to ensure that the benefits outweigh the costs. Moreover, the transition period and compliance dates proposed in the rule need to be taken into account. Providing a one-year transition period for advisers to comply with the new rule is commendable. However, it is important to consider the varying assets under management of different advisers when determining compliance dates. Flexibility should be afforded to advisers based on their individual circumstances to ensure a smooth transition to the new requirements. In conclusion, I urge the SEC to address the concerns raised in this comment. It is paramount to carefully consider the regulatory implications of privacy coins, provide clearer guidance on digital assets, protect small advisers from excessive compliance burdens, and assess the economic impact of the proposed rule. By doing so, the SEC can further enhance investor protections while fostering innovation and growth in the advisory industry. Thank you for considering my comments. Sincerely, Rainer Winkler