Oct. 29, 2023
To whom it may concern, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). While I recognize the importance of enhancing investor protections and addressing gaps in the custody rule, I have concerns regarding certain aspects of the proposed rule. Potential Overreach of Regulatory Authority: My first concern pertains to the potential overreach of regulatory authority by the SEC in proposing this rule. It is important to ensure that regulatory responsibilities are swift and directed to the appropriate authorities. In the case of cryptocurrency, which is not an entity regulated by governments but rather controlled by individuals, the tax implications should ideally be monitored by the banks themselves and not by the SEC. Imposing additional regulatory burden on the SEC risks stifling innovation and may have unintended consequences for the broader crypto ecosystem. Moreover, the SEC should exercise caution to avoid overlapping jurisdictions and encroaching on areas that are best regulated by other agencies. Clear boundaries between regulatory authorities are crucial to prevent duplicative requirements and reduce compliance costs for market participants. Balance between Investor Protection and Industry Practices: While I acknowledge the importance of safeguarding client assets and the need to address potential risks associated with custody, it is equally important to strike a balance that allows investment advisers to operate efficiently without hampering the growth and competitiveness of the industry. The proposed rule's expansion of the coverage to include a broader range of investments introduces complexities that may result in unintended burdensome compliance measures for investment advisers. There needs to be flexibility for investment advisers to adopt innovative technologies and custody solutions while ensuring that appropriate safeguards are in place. Crypto Assets: Unique Challenges and Guidance: Crypto assets present unique challenges in terms of custody and compliance. It is essential for the SEC to provide clear guidance to investment advisers on how to demonstrate exclusive control over these assets, considering their decentralized nature. Ambiguity in the treatment of crypto assets may hinder institutional adoption and prevent potential investors from fully capitalizing on the benefits of this emerging asset class. The SEC should collaborate with industry stakeholders and subject matter experts to cultivate a transparent regulatory environment that accommodates the unique characteristics of cryptocurrency assets while effectively safeguarding investor interests. Effective and Efficient Implementation: To minimize the compliance burden on investment advisers, the SEC should consider providing sufficient transition periods and compliance dates based on the assets under management. A one-year transition period, as proposed, appears reasonable, but further flexibility should be considered based on the practicality of implementation and the time required for investment advisers to adjust their operational processes. Additionally, the proposed requirement for surprise examinations should be assessed for its effectiveness in protecting client assets. There should be clarity on the scope and frequency of these examinations to ensure they do not become overly burdensome, particularly for investment advisers with discretionary authority over client assets. Public Consultation and Transparency: Lastly, I would like to commend the SEC for seeking public comments and soliciting input on the proposed rule. This promotes transparency and allows for the consideration of diverse perspectives from market participants, investors, and other stakeholders. I encourage the SEC to remain open to reasonable alternatives and to thoroughly evaluate the impact of the proposed rule from both a quantitative and qualitative perspective. In conclusion, I believe it is essential for the SEC to strike the right balance between investor protection and facilitating sustainable growth in the industry. As the SEC finalizes the rule, I hope it takes into consideration the concerns raised in this public comment and continues to engage with market participants to ensure effective and efficient implementation. Thank you for considering my comments. I trust that the SEC will consider the broader implications of this rule and make well-informed decisions that ultimately serve the best interests of investors and the industry.