Oct. 29, 2023
I am writing to provide my public comment on the recently proposed rule by the Securities and Exchange Commission (SEC) regarding the safeguarding of advisory client assets. While I appreciate the SEC's efforts to enhance investor protections, there are certain concerns that need to be addressed in relation to the scope of the rule, the unique properties of cryptocurrency, and the potential negative impact on economic growth and privacy rights. Firstly, I would like to express my concern regarding the inadequate consideration of the unique properties of cryptocurrency. The proposed rule fails to take into account the decentralized nature and technological complexities of cryptocurrency. By attempting to apply traditional custody requirements to crypto assets, the SEC is imposing impractical regulatory obligations on investment advisers. This not only undermines the innovation associated with cryptocurrencies but also stifles the growth of this emerging market. Furthermore, the proposed rule may unintentionally violate privacy rights. The enhanced recordkeeping and reporting requirements may result in the disclosure of sensitive information about clients and their investment portfolio. This raises concerns over the potential misuse or unauthorized access to personal data, which can have severe consequences for individuals' privacy rights. It is essential for the SEC to balance the need for investor protection with the protection of privacy rights, ensuring that the rule is tailored to minimize the risk of unnecessary data exposure. In addition, I am concerned about the potential negative impact on economic growth. The proposed rule aims to address gaps in the custody rule and enhance investor protections, which is commendable. However, the increased compliance costs and regulatory burden imposed by the rule may deter both small and large investment advisers from offering certain services or investing in innovative assets. This could hinder capital formation and limit investment opportunities, thereby compromising economic growth and market efficiency. I would like to emphasize the importance of adopting a nuanced approach that takes into account the rapidly evolving nature of the financial industry. While investor protections are of paramount importance, it is necessary to balance them with the encouragement of innovation, economic growth, and privacy rights. Flexibility and a deep understanding of the unique properties of different assets, such as cryptocurrency, are essential to ensure fair and effective regulations. Therefore, I urge the SEC to consider the following recommendations in order to address the concerns raised: 1. Develop a separate regulatory framework specifically tailored to the unique properties of cryptocurrency and other emerging assets, rather than attempting to fit them into a traditional custody model. 2. Conduct a comprehensive assessment of the potential privacy implications arising from the proposed rule. Implement safeguards and data protection measures to minimize risks and ensure compliance with applicable privacy laws. 3. Conduct a thorough cost-benefit analysis to evaluate the potential impact of the rule on economic growth, small businesses, innovation, and competition. Consider potential alternative approaches that could achieve the same level of investor protection without unduly burdening investment advisers. In conclusion, it is essential for the SEC to consider a balanced approach towards the safeguarding of advisory client assets. To achieve optimal investor protections and foster innovation, the unique properties of cryptocurrency must be adequately considered, and the potential impact on economic growth and privacy rights must be carefully assessed. I commend the SEC for seeking public input on this matter and trust that my concerns will be taken into account during the rule-making process. Thank you for your consideration. Sincerely, Garett