Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing in response to the recently proposed rule on Safeguarding Advisory Client Assets (File number S7 100 20; Release No. IA-5647; File number PCIEF-144). This rule aims to enhance investor protections and address gaps in the custody rule, including amendments to the current rule, record keeping, and registration requirements. I appreciate the efforts made by the Securities and Exchange Commission (SEC) to promote investor protection and ensure the safe handling of client assets. However, I have concerns regarding the current proposal, specifically with regards to the inadequate consideration of the unique properties of cryptocurrency. Digital assets, such as cryptocurrency, have emerged as a transformative technology within the finance industry. They operate in a decentralized manner relying on blockchain technology, which offers numerous benefits and challenges. Unfortunately, it appears that the SEC has not taken into account the decentralized nature and technological complexities of cryptocurrency, leading to impractical regulatory requirements. As an investor in digital assets, I am deeply concerned that these proposed rules will have a detrimental impact on the sector. While investor protection is certainly important, it is equally crucial to foster innovation and ensure a fair and balanced regulatory environment for all market participants. Imposing burdensome requirements on cryptocurrencies without considering their unique qualities may stifle their growth and hinder their potential benefits to the financial system as a whole. One area of concern is the application of the rule to crypto assets and the challenges in demonstrating exclusive control over them. Given the decentralized nature of cryptocurrency, traditional custodial arrangements may not be applicable. Imposing strict custody requirements without fully understanding the technical nuances of cryptocurrency may result in a less secure environment for investors. It is crucial that any regulatory framework for cryptocurrencies takes into account the decentralized nature, peer-to-peer transactions, and technological complexities inherent in these assets. Additionally, it is important to note that the adoption of digital assets brings about new opportunities for diversification and growth in investment portfolios. The proposed rules regarding custody and delivery of client notice to custodians might discourage investment advisers from offering digital assets as an investment option, limiting investors' access to this emerging and potentially lucrative market. Ensuring reasonable and practical regulatory requirements, tailored to the unique features of digital assets, would allow for the growth and development of this innovative sector, benefiting both investors and the financial industry as a whole. In conclusion, as an investor in digital assets, I believe that the proposed Safeguarding Advisory Client Assets rule fails to adequately consider the unique properties of cryptocurrency. Imposing overly burdensome regulations on this emerging and transformative technology may hinder its growth and negatively impact the financial market. I urge the SEC to carefully assess the specific characteristics and technological nuances of digital assets before finalizing the rules. A regulatory framework that strikes the right balance between investor protection and enabling innovation will ensure the long-term sustainability and success of the digital asset ecosystem. Thank you for considering my comments on this important matter. I am hopeful that the SEC will take into account the concerns raised by investors like myself in order to create a regulatory framework that fosters innovation while safeguarding investor interests. Sincerely, James C. Culver, MD