Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I understand that the goal of this rule is to enhance investor protections and address gaps in the custody rule, I believe there are certain areas where the SEC's proposed regulations may exceed its regulatory authority, encroaching upon areas that should be regulated by other agencies. One such area is the treatment of digital assets or cryptocurrencies. As we witness the rapid transformation of finance through the emergence of digital currencies built on blockchain technology, it is crucial to address the regulatory uncertainties to ensure investor protection. However, it is important to strike a balance between fostering innovation and implementing overly burdensome regulations that stifle the potential benefits of these technologies. In this regard, I believe that the SEC's proposed rule may have the unintended consequence of hurting investors, especially with regards to the treatment of digital assets. While ensuring adequate safeguards for investor assets is crucial, it is equally important not to stifle the potential of these digital assets to democratize finance and provide individuals with more control over their own financial future. Education and awareness are the keys to empowering investors, rather than sudden and overreaching regulations. Additionally, I am concerned about the potential ambiguities and challenges relating to demonstrating exclusive control over digital assets, as highlighted in the proposed rule. The unique nature of blockchain technology and the decentralized nature of cryptocurrencies make it difficult to establish clear custody standards. It is important to consider the nuances of decentralized finance and collaborate with other relevant agencies to develop comprehensive regulations that appropriately safeguard investor assets without stifling innovation. Furthermore, the proposed rule's amendments to the surprise examination requirement do provide enhanced protections but should be mindful of the compliance costs and burdens imposed on investment advisers. While promoting accountability is of utmost importance, we must also consider the potential impact on the efficiency and competitiveness of the investment advisory industry. Striking the right balance between investor protection and industry efficiency is essential to foster sustainable growth. Lastly, the proposed rule's reporting, compliance, and recordkeeping requirements, though well-intentioned, may impose a significant burden on small investment advisers. It is essential to carefully evaluate the potential impact on these entities to ensure that the regulations do not disproportionately disadvantage small businesses or hinder their ability to provide quality advisory services. In conclusion, while I appreciate the SEC's efforts to enhance investor protection through the proposed rule on "Safeguarding Advisory Client Assets," I believe that certain aspects of the proposed regulations may exceed the SEC's regulatory authority and hinder innovation in the digital asset space. It is crucial to strike the right balance between safeguarding investor assets and fostering a conducive environment for growth and innovation. I encourage the SEC to collaborate with other relevant agencies and consider a more nuanced approach that takes into account the unique challenges and opportunities presented by digital assets. Thank you for considering my comments. If there are any additional areas of concern or any general questions regarding the proposal, please do not hesitate to contact me. Luke