Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing to share my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I appreciate the SEC's effort to enhance investor protections and address gaps in the custody rule, I believe that certain aspects of the proposed rule may have negative consequences, specifically in relation to digital assets or cryptocurrencies. As we witness the transformative potential of digital assets, such as cryptocurrencies built on blockchain technology, it is crucial to ensure that regulatory frameworks do not inadvertently restrict investor access to this emerging asset class. Some provisions in the proposed rule may undermine investor participation in digital assets and impede innovation in the financial industry. For instance, the rule states that client assets should be maintained with a qualified custodian. While this requirement is understandable for traditional assets, it may create challenges for digital assets that do not have a custodial intermediary. This could effectively exclude investors from accessing digital asset markets or require them to rely on third-party custodians, limiting their control over their own investments. Furthermore, the proposed changes to the surprise examination requirement could place an additional burden on investment advisers dealing with digital assets. It is crucial to acknowledge the nuances and complexities involved in demonstrating exclusive control over digital assets and to develop alternative examination models that are appropriate and feasible for this asset class. The SEC should consider striking a balance between protecting investors and promoting innovation in the digital asset space. This can be achieved by providing clear and flexible guidelines that address the specific challenges associated with digital assets, rather than applying existing custodial requirements without further consideration. In conclusion, while I support the SEC's objective of enhancing investor protections, I urge you to take into account the unique characteristics of digital assets and ensure that the proposed rule does not unduly restrict investor access to this important and emerging asset class. By providing a regulatory framework that encourages responsible innovation and investor participation, the SEC can foster a vibrant and competitive marketplace that benefits all stakeholders. Thank you for considering my comments. I trust that you will take these concerns into account as you finalize the rulemaking process. Sincerely, Andrew Moreno-Hunt