Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment 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, I have several concerns regarding the rule that I believe warrant reconsideration. Firstly, I would like to address the scope of the rule and its application to digital assets or cryptocurrencies. The proposed rule expands the coverage to include a broader range of investments held in a client's account. However, it is evident that the SEC does not adequately consider the unique properties of cryptocurrency, thereby creating impractical regulatory requirements. The decentralised nature and technological complexities of cryptocurrency necessitate a nuanced and adaptable regulatory approach. Encumbering cryptocurrency investments with burdensome and inflexible custodial requirements may hinder the industry's growth and innovation, ultimately stifling the potential benefits that digital assets can bring to our financial system. Furthermore, the SEC's aim to ensure the segregation of client assets deserves attention. While safeguarding client assets is crucial, it is important to strike a balance and avoid overly burdensome requirements that may impede investment advisers' ability to efficiently manage and deploy client assets. The proposed rule emphasises the protection of client assets, but it may inadvertently hinder advisers' ability to provide effective investment strategies and generate optimal returns. Flexibility should be maintained to allow for reasonable and informed investment decisions while still maintaining the necessary safeguards. Additionally, I would like to address the proposed amendments to the surprise examination requirement. While I understand the SEC's objective to reduce the risk of loss and enhance asset protection, the proposed changes may place an excessive burden on investment advisers. The requirement for a written agreement with an independent public accountant may introduce unnecessary costs for advisers, particularly smaller firms. Instead, the SEC should consider alternative methods of ensuring transparency and accountability, such as increased reporting and record keeping requirements, which would strike a better balance between safeguarding client assets and minimising compliance costs. Furthermore, the economic analysis provided by the SEC requires careful consideration. While the proposed rule aims to enhance investor protections, the potential costs and burdens placed on investment advisers should not be overlooked. Compliance costs may vary significantly among advisers due to different custodial practices and existing controls. Therefore, a thorough evaluation of each adviser's circumstances is necessary to ensure that the benefits of the proposed rule do not outweigh the costs, particularly for smaller firms operating with limited resources. In conclusion, I urge the SEC to reconsider certain aspects of the proposed rule regarding the unique properties of cryptocurrency, the segregation of client assets, and the amendments to the surprise examination requirements. It is vital that the SEC's regulatory approach strikes a balance between investor protections and allowing for innovation and growth within the digital asset space. Additionally, I encourage the SEC to further assess the economic impact of the proposed rule, ensuring that the benefits outweigh the costs for all investment advisers, regardless of their size. Thank you for considering my concerns. I appreciate the opportunity to offer these comments and contribute to the public discourse. Sincerely,