Subject: S7-04-23: Webform Comments from Phil Lawrence
From: Phil Lawrence
Affiliation:

Oct. 29, 2023

Dear Securities and Exchange Commission,

I am writing to provide my comments on the proposed rule
"Safeguarding Advisory Client Assets." While I appreciate
the SEC's efforts to enhance investor protections and address
gaps in the custody rule, there are certain aspects of the proposed
rule that raise concerns regarding the burden on exchanges to
demonstrate exclusive control over client assets, particularly in the
case of certain types of digital assets.

One of the key issues I would like to address is the burden placed on
exchanges to demonstrate exclusive control over client assets. The
proposed rules may be impractical for certain types of digital assets,
where the concept of exclusive control can be more complex. Given the
evolving nature of digital assets and the various ways in which they
can be stored and transferred, it may be challenging for exchanges to
meet the strict requirements set forth in the proposed rule.

While it is important to safeguard client assets, it is equally
crucial to ensure that the rules and regulations put in place are
feasible and practical for the market participants. Imposing a burden
on exchanges to demonstrate exclusive control without considering the
unique characteristics of digital assets could hinder innovation and
growth in this emerging sector. Instead, a more nuanced approach
should be taken, taking into account the specific characteristics of
different types of digital assets.

Furthermore, it would be beneficial to have a clear definition and
framework for determining exclusive control over client assets. This
would provide guidance to exchanges and help establish consistent
practices across the industry. A well-defined framework would also
support regulatory oversight and improve confidence among market
participants.

In addition to addressing the burden on exchanges to demonstrate
exclusive control, it is important to consider the potential
unintended consequences of the proposed rule. While the goal is to
enhance investor protections, overly stringent requirements may
discourage exchanges and custodians from offering services related to
digital assets. This could ultimately limit access to investment
opportunities and hinder the development of a robust digital asset
market.

To strike a balance between investor protections and market
efficiency, I propose that the SEC engage in a collaborative process
with industry participants and experts to develop a set of guidelines
and best practices for safeguarding digital assets. This approach
would allow for flexibility and adaptation to the evolving landscape,
while still ensuring adequate protections for investors.

In conclusion, while I support the SEC's efforts to enhance the
safeguarding of client assets, I urge the Commission to carefully
consider the burden placed on exchanges to demonstrate exclusive
control over client assets, particularly in the case of digital
assets. Taking a collaborative and nuanced approach will help strike
the right balance between investor protections and market efficiency.

Thank you for considering my comments.

Sincerely,
Phil Lawrence