Oct. 28, 2023
Dear Securities and Exchange Commission (SEC), I am writing as a concerned U.S. citizen to provide my comments on the proposed rule "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). First and foremost, I commend the SEC's efforts to enhance investor protections and address gaps in the custody rule. It is crucial to ensure the safeguarding of client assets in the ever-evolving landscape of investment advisory services. However, I have significant concerns regarding certain aspects of the proposed rule, particularly in relation to the inconsistent regulatory treatment of utility tokens and digital assets. As the proposed rule seeks to address the safeguarding of client assets, it is important to consider the implications of digital assets, such as cryptocurrency, which are transforming the financial industry. The proposal's failure to provide consistent regulatory treatment for utility tokens and digital assets leads to confusion and potential regulatory arbitrage. Without clear guidelines, investment advisers may face difficulties in complying with the rule, resulting in legal uncertainty and potential harm to clients. Given the rapid pace of innovation in the digital asset space, it is essential to have regulatory clarity that aligns with technological advancements. This will encourage responsible participation and promote investor confidence while protecting against fraudulent activities. Moreover, the proposed rule should provide explicit guidance on how to address challenges related to custodial control over crypto assets. The unique characteristics of digital assets, such as exclusive control and cold storage practices, require thoughtful consideration to ensure their effective inclusion within the regulatory framework. Failure to address these issues adequately may hinder investor access to digital asset investments and impede their growth potential. To mitigate these concerns, I recommend the SEC consider collaboration with industry stakeholders to establish best practices for the safeguarding of digital assets. By engaging with experts in the field, the SEC can develop a comprehensive framework that balances investor protection with innovation. Furthermore, the proposed rule should address the need for enhanced due diligence when it comes to evaluating custodial arrangements for digital assets. As custodian capabilities evolve, investment advisers should be equipped with the necessary guidance and resources to assess the security and legitimacy of potential custodians. Implementing robust due diligence requirements will serve as a strong deterrent against fraudulent activity and protect client assets. In conclusion, while I support the SEC's objectives to enhance investor protections through the proposed rule, I urge the commission to address the concerns regarding the inconsistent regulatory treatment of utility tokens and digital assets. As the digital asset industry continues to evolve, it is imperative to establish clear guidelines and collaborate with industry experts to foster innovation and ensure the security of client assets. By doing so, the SEC can effectively fulfill its mandate to protect investors while promoting economic growth. Thank you for considering my comments. I trust that you will carefully evaluate all public comments and take them into account when finalizing the "Safeguarding Advisory Client Assets" rule. If there are any additional opportunities for public comment or if you have any further questions, I would appreciate the chance to provide additional input and clarification. Sincerely, A Concerned U.S. Citizen