Oct. 26, 2023
Stephen McClatchie Mount Eliza Australia [REDACTED] 10/26/2013 Securities and Exchange Commission Comment File No. S7-35-21 100 F Street, NE Washington, DC 20549 RE: Safeguarding Advisory Client Assets Proposal Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on safeguarding advisory client assets (Comment File No. S7-35-21). While I appreciate the SEC's efforts to enhance investor protections, I believe that certain aspects of this proposal may have unintended negative consequences, particularly for decentralized finance (DeFi) projects and small businesses. First, I want to address the potential negative impact this rule may have on the growth and development of decentralized finance. DeFi projects have emerged as dynamic and innovative financial ecosystems that offer greater access to financial services and promote financial inclusion. The proposed rules, however, may hinder the growth and development of DeFi projects by imposing excessive reporting requirements and stifling innovation. In particular, the reporting requirements in the proposed rule would necessitate small businesses and start-up protocols, which may not usually track personal identifiable information, to implement such tracking. This would impose an additional financial burden on these projects and put them at a disadvantage. The costs associated with complying with these requirements could limit the ability of DeFi projects to allocate resources towards research, development, and innovation. Ultimately, this could stifle the potential benefits that DeFi offers to investors and the broader financial ecosystem. Furthermore, the proposed rule's emphasis on custodial arrangements may disproportionately affect small businesses. The additional costs associated with these requirements could be burdensome for smaller firms, limiting their ability to compete with larger investment advisers. This creates an uneven playing field and hinders the ability of small businesses to thrive and contribute to the economy. Instead of fostering innovation and competition, the proposed rule may inadvertently lead to consolidation among larger firms at the expense of smaller, independent advisers. It is crucial for the SEC to consider the ramifications of these regulations on decentralized finance and small businesses. While investor protection should remain a priority, striking a balance between regulation and innovation is essential. In light of this, I urge the SEC to carefully evaluate the potential negative impact that these proposals could have on DeFi and small businesses. Furthermore, I would like to address the concerns raised regarding the necessity and accuracy of the proposed collections of information outlined in the Paperwork Reduction Act Analysis. The estimated burden and costs for small businesses and start-up protocols are vast and could further escalate the challenges faced by these entities. Businesses that would not otherwise be required to track personal identifiable information may incur significant expenses, undermining their ability to allocate resources effectively and hindering their growth potential. Additionally, it is essential to fully assess the economic consequences of these proposals. While the aim of the rule is to enhance investor protections, it is crucial to consider the potential unintended negative impacts, such as increased compliance costs, decreased innovation, and reduced competitiveness. It is important for the SEC to carefully evaluate the proposed rule's impact on the economy as a whole and the potential barriers it may create for small businesses and emerging technologies. In conclusion, I respectfully urge the Securities and Exchange Commission to consider the potential negative ramifications of the proposed rule on decentralized finance and small businesses. It is crucial to strike a balance between investor protection and fostering an environment that encourages innovation, competition, and financial inclusion. I appreciate your thoughtful consideration and remain hopeful that the final rule will be crafted in a manner that maximizes investor protection while supporting the growth and development of innovative financial ecosystems. Thank you for your attention to this matter. Sincerely, Stephen McClatchie