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 appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I believe there are certain issues that need to be further examined and addressed. One important area that requires adequate consideration is the treatment of cryptocurrency. The proposed rule does not take into account the unique properties and technological complexities associated with cryptocurrencies, leading to impractical regulatory requirements. Cryptocurrencies operate on a decentralized platform, and imposing custodial requirements that align with traditional assets is not feasible. The SEC should consider developing a separate set of standards tailored to the characteristics of cryptocurrencies, which would provide adequate protection without stifling innovation. Another significant concern I have is the issue of privacy and safety associated with the proposed rule. The rule requires investment advisers to provide detailed information to custodians, including sensitive financial data and social security numbers. While I understand the importance of safeguarding client assets, we must also consider the potential risks associated with sharing such information with multiple third parties. There is a need for comprehensive data protection measures and strong safeguards to ensure the privacy and security of client information. Furthermore, the economic analysis provided lacks sufficient clarity and fails to address all potential costs and benefits. The SEC acknowledges the challenges in estimating economic effects, but a more nuanced assessment is crucial to understand the true impact of the proposed rule on investment advisers and their clients. We need a comprehensive analysis that considers the varying practices among investment advisers and quantifies the potential costs involved. Additionally, the proposed compliance requirements may disproportionately burden smaller investment advisers. While most small advisers registered with state authorities are exempt, there are still a significant number of SEC-registered advisers who would be subject to the rule amendments. It is important to carefully evaluate the impact on small entities and consider possible ways to mitigate any potential adverse effects, such as providing additional guidance and support. In conclusion, while the proposed rule aims to enhance investor protections, there are several areas that require further consideration and clarification. The SEC should take into account the unique properties of cryptocurrencies and ensure the safeguarding of client assets without imposing impractical requirements. Additionally, greater attention needs to be given to the privacy and security concerns associated with sharing sensitive client information with multiple custodians. Finally, a comprehensive and detailed economic analysis is needed to fully understand the costs and benefits of the proposed rule. Thank you for considering my concerns. I hope that my comments will contribute to the development of a rule that balances investor protections with practicality and innovation. Sincerely, Chris Foster