Oct. 28, 2023
Dear SEC, As A Concerned U.S. Citizen, I would like to express my thoughts and concerns regarding the proposed rule "Safeguarding Advisory Client Assets." While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, there are certain aspects of the proposed rule that warrant further consideration and revision. One area of concern is the burden that the proposed rules would place on exchanges to implement market surveillance systems. While it is important to protect investors and maintain market integrity, the costs and complexities associated with developing and implementing such systems should not be underestimated. Furthermore, imposing additional burdens on exchanges may hinder innovation and hinder the growth of digital asset markets, particularly in the case of emerging technologies like cryptocurrencies. Speaking of digital assets or crypto, it is crucial to acknowledge the transformative potential of these assets, built on blockchain technology, in the finance industry. However, regulatory uncertainties surrounding digital assets pose significant challenges for both market participants and regulators. It is essential that any regulatory framework implemented by the SEC takes into account the unique characteristics of digital assets and provides clarity and certainty for market participants. In regards to the scope of the proposed rule, the expansion of coverage to include a broader range of investments held in a client's account is commendable. However, there should be a careful balance between investor protection and ensuring that the rule does not impose unnecessary burdens on investment advisers. While it is essential to include discretionary authority in custody, exceptions for specific situations should be clearly defined to avoid confusion and avoid undue burden on advisers. Additionally, the rule's aim to ensure client assets are segregated from the adviser's assets is crucial for safeguarding investor funds. However, it is important to consider the practical challenges faced by investment advisers in segregating digital assets and other non-traditional investments that cannot be easily maintained with a qualified custodian. The proposed amendments should provide clear guidance on how advisers can effectively safeguard these types of assets while still prioritizing investor protection. Furthermore, the proposed amendments to the surprise examination requirements are a step in the right direction. However, to avoid imposing undue compliance costs on advisers, it is essential to provide exceptions for those who have discretionary authority over client assets or custody solely due to a standing letter of authorization. This would ensure that the rule efficiently targets the areas of highest risk without burdening responsible investment advisers. Regarding the economic analysis, while the SEC's considerations of costs and benefits reflect a comprehensive evaluation, it is important to carefully assess the potential impact on advisory services, competition, and compliance costs for qualified custodians. Striking the right balance between enhancing investor protections and maintaining a favorable environment for investment advisers is crucial for creating a sustainable regulatory framework. In conclusion, I strongly urge the SEC to take into account the concerns raised regarding the burden on exchanges to implement market surveillance systems, the unique challenges faced by digital assets and cryptocurrencies, and the potential impact on investment advisers and custodians. By addressing these concerns and considering the interests of all stakeholders, the SEC can create a regulatory framework that effectively enhances investor protections without stifling innovation and imposing unnecessary burdens on market participants. Thank you for considering my public comment. I appreciate the SEC's commitment to investor protection and the opportunity to voice my concerns on this important matter. Sincerely, A Concerned U.S. Citizen