Oct. 27, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns and reservations regarding the proposed rule on "Safeguarding Advisory Client Assets." While I acknowledge the importance of enhancing investor protections and addressing gaps in the custody rule, I believe that the current proposal lacks the necessary flexibility for innovative custodial solutions in the digital asset industry. In today's rapidly changing financial landscape, digital assets, such as cryptocurrencies, are revolutionizing the way we conduct transactions and store value. These assets, built on blockchain technology, offer immense potential for efficiency, transparency, and accessibility. However, the regulatory uncertainties surrounding digital assets pose significant challenges for both investors and advisors, hindering progress and stifling competition. The SEC's proposed rules fail to provide the necessary framework to accommodate the unique characteristics and complexities of digital assets. By imposing rigid requirements that do not consider the innovative custodial solutions being developed, the proposal may inadvertently limit competition and hinder market development. Rather than providing clarity and fostering growth, the lack of flexibility in the rules may discourage potential custodians and investors from participating in the digital asset market. To maximize the benefits and mitigate the risks associated with digital assets, it is crucial for regulators to adopt a forward-thinking approach that encourages innovation and safeguards investor interests. The SEC should actively engage with industry experts, advisors, and custodians to develop a regulatory framework that strikes a balance between investor protections and fostering a vibrant digital asset ecosystem. Additionally, the proposal should take into account the unique challenges in demonstrating exclusive control over digital assets. As the custody of digital assets often relies on cryptographic keys rather than physical possession, the SEC should explore alternative methods of demonstrating proper safeguards and control that go beyond traditional custodian models. Furthermore, while I appreciate the SEC's intention to enhance transparency and oversight through increased recordkeeping and reporting requirements, the proposed rule's burden must be carefully balanced. The additional compliance costs, particularly for small and innovative custodians, might hinder their ability to compete, effectively stifling competition in the digital asset custodial space. In conclusion, I urge the SEC to reevaluate the proposed rule on "Safeguarding Advisory Client Assets" and consider the need for flexibility when regulating digital assets. By fostering innovation and competition in the digital asset custodial space, the SEC can support the growth of this transformative industry while ensuring investor protections are upheld. Thank you for considering my concerns. I look forward to a regulatory framework that embraces the potential of digital assets while addressing investor safeguards. Sincerely, Sunny Ali