Oct. 28, 2023
To whom it may concern, I am writing to provide my feedback and concerns regarding the Securities and Exchange Commission's (SEC) proposed rule on "Safeguarding Advisory Client Assets." While I recognize the importance of enhancing investor protections and addressing gaps in the custody rule, I believe there are several issues and inadequacies within the proposal that need to be addressed. One specific concern I would like to highlight is the inadequate consideration of the unique properties of cryptocurrency. The SEC's current approach fails to take into account the decentralized nature and technological complexities of cryptocurrency, which ultimately leads to impractical regulatory requirements. The proposed rule expands the coverage to include a broader range of investments held in a client's account, but it fails to provide clear guidance on how to effectively safeguard cryptocurrencies. The SEC must recognize that the traditional methods used for safeguarding other types of assets may not be applicable to cryptocurrencies, which require different security measures. My second concern revolves around the poorly defined terms used throughout the proposed regulation. The current version of the rule includes undefined terms such as platform, software, and ledger, which can be interpreted in various ways and lead to confusion for investment advisers and clients alike. Additionally, the definition of terms like wallet and validator is not aligned with their technical meaning. It is essential that these terms are properly defined to ensure clarity and consistency in compliance efforts. Vague or ambiguous definitions can create unnecessary burdens for investment advisers attempting to adhere to the rule. Moreover, it is crucial for the SEC to consider the economic impact and feasibility of the proposed rule. While the enhancements in investor protection are laudable, it is essential to strike a balance that does not unduly burden investment advisers. The estimated compliance costs, as outlined in the economic analysis, need to be reevaluated to ensure they do not disproportionately affect small advisers or discourage participation in the cryptocurrency market. Furthermore, the proposed amendments to the surprise examination requirement should include more flexible options for advisers with discretionary authority over client assets and those with custody solely due to a standing letter of authorization (SLOA). One-size-fits-all solutions ignore the unique circumstances and risk profiles of different advisory firms and can hinder investment advisers from effectively fulfilling their fiduciary duties. In conclusion, the SEC must address the concerns raised regarding the proper safeguarding of client assets, particularly when it comes to cryptocurrency. Furthermore, a more precise and consistently defined set of terms is necessary to prevent confusion and ensure compliance. The economic impact on investment advisers, especially small entities, should be carefully considered to avoid undue burden. Lastly, the proposed amendments to the surprise examination requirement should incorporate more flexibility for different types of advisers. Thank you for considering my comments on this important matter. I trust that the SEC will take into account these concerns when finalizing the rule. Sincerely, Jeremy Moll Get Outlook for Android