Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." As a concerned U.S. citizen, I believe it is crucial to strike a balance between enhancing investor protections and supporting innovation in the digital asset space, particularly with regard to cryptocurrencies. The proposed rule expands the coverage of the custody rule to include a broader range of investments held in a client's account, including digital assets. While it is important to ensure the security of client assets, there are unique challenges associated with monitoring and reporting suspicious activities in the pseudonymous nature of blockchain transactions. Exchanges, particularly those dealing with digital assets, should not be burdened with impractical or unattainable expectations in safeguarding these assets. Digital assets, such as cryptocurrencies, have emerged as a transformative force in the financial industry. They offer increased efficiency, transparency, and accessibility, but also present regulatory uncertainties. It is crucial for the SEC to consider the evolving nature of digital assets and adopt a flexible regulatory framework that fosters innovation and provides clarity to market participants. While it is understandable that the SEC aims to protect investor interests in an evolving market, any regulatory measures must be proportionate, mindful of potential unintended consequences, and designed to avoid stifling innovation. Excessive regulatory burdens could disproportionately affect smaller entities, inhibiting market participation and hindering the growth and competitiveness of the digital asset ecosystem. Furthermore, it is important for the SEC to recognize that numerous efforts are already underway to enhance safety measures and build a more secure digital asset infrastructure. Industry-led initiatives, such as self-regulatory organizations and best practices frameworks, are actively working towards establishing comprehensive standards for digital asset custody and protection. These collaborative efforts should be acknowledged and considered before introducing additional regulatory obligations. In addition, the SEC's proposed rule changes require a substantial compliance burden and impose significant costs on investment advisers, especially those dealing with digital assets. We must carefully evaluate the cost-benefit analysis and ensure that the potential benefits of the rule amendments outweigh the associated compliance costs. It is essential to strike a balance between protecting investors and enabling investment advisers to operate efficiently and competently in an ever-evolving digital asset landscape. As the proposed rule acknowledges, investment advisers reported custody of client assets worth a staggering $45.56 trillion, illustrating the magnitude of the challenge to adequately safeguard these assets. However, it is imperative that the rule acknowledges the unique characteristics of digital assets and finds a suitable approach to address the concerns specific to this rapidly developing market. In conclusion, I urge the SEC to consider the dynamic and innovative nature of the digital asset space when finalizing the proposed rule on safeguarding advisory client assets. Balancing investor protection with fostering innovation and competition will be crucial in establishing a forward-thinking and effective regulatory framework. Furthermore, it is essential to avoid imposing impractical burdens on exchanges and small entities, while acknowledging the ongoing industry-led initiatives to improve digital asset custody practices. Thank you for the opportunity to provide my input on this important matter. Sincerely, A Concerned U.S. Citizen