Oct. 27, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on Safeguarding Advisory Client Assets. While I believe that enhancing investor protections and addressing gaps in the custody rule is important, I have several reservations about the current proposal. Specifically, I would like to address the inconsistent regulatory treatment of stablecoins and the impact of the proposed rules on digital assets or cryptocurrencies. Firstly, the SEC's proposed rules do not provide consistent regulatory treatment for stablecoins. This lack of consistency creates uncertainty in the market and may disrupt the smooth functioning of stablecoin ecosystems. Stablecoins, which are digital assets designed to maintain a stable value, play a crucial role in facilitating financial transactions and enabling innovative decentralized finance solutions. However, without clear and consistent regulation, issuers and users of stablecoins face regulatory risks and are uncertain about their legal obligations. This could hinder the growth and development of stablecoin markets, limiting their potential benefits. Additionally, I am concerned about the impact of the proposed rules on digital assets or cryptocurrencies in general. Digital assets, such as cryptocurrencies built on blockchain technology, are transforming the financial industry. They offer unprecedented opportunities for financial inclusion, innovation, and efficiency. However, regulatory uncertainties pose significant challenges to the growth and widespread adoption of these technologies. The current proposal lacks clarity on how digital assets and cryptocurrencies will be treated under the new rule. This ambiguity could discourage investment advisers from engaging with these emerging assets and limit their ability to provide services to clients who seek exposure to this innovative asset class. In an increasingly digitized world, it is essential that regulatory frameworks keep pace with technological advancements and provide clear guidelines to protect investors while fostering innovation. Furthermore, the proposed rule may inadvertently stifle competition and hinder capital formation. By imposing costly compliance requirements on qualified custodians and investment advisers, the rule may create barriers to entry and limit the provision of advisory services, especially for small firms. These compliance costs could disproportionally affect smaller players in the market, hindering competition and potentially narrowing the range of choices available to investors. It is important to encourage diverse market participation and promote a level playing field for all market participants to foster competition, innovation, and ultimately, capital formation. In conclusion, while I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I urge the Commission to consider the potential impact of the proposed rules on stablecoins and digital assets. Providing consistent regulatory treatment and clear guidelines for these technologies is crucial to foster innovation, protect investors, and ensure the competitiveness of the financial markets. Additionally, it is important to carefully balance investor protections with promoting competition and capital formation, particularly for small firms. I urge the SEC to thoroughly consider these concerns and engage in meaningful dialogue with industry stakeholders to develop a well-balanced regulatory framework. Thank you for considering my comments on this proposed rule. I look forward to your thoughtful consideration of these matters. Sincerely, Sunny Ali