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