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 Securities and Exchange Commission's (SEC) intention to enhance investor protections and address gaps in the custody rule, I have several concerns about the potential overreach of the regulatory authority and the impact on digital assets. Firstly, I worry that the proposed rule may exceed the SEC's regulatory authority and encroach on areas that should be regulated by other agencies. Regulatory powers should be exercised judiciously, taking into account the expertise and jurisdiction of relevant agencies. It is important to clarify the boundaries to avoid potential duplication and confusion among regulators. Secondly, with regard to digital assets or crypto, it is evident that these assets, built on blockchain technology, are transforming the financial landscape. However, regulatory uncertainties pose challenges for market participants. While implementing safeguards for client assets in the digital asset space is essential, the rules proposed by the SEC lack clarity. It is imperative that the SEC provides specific guidance and clarifies its stance on digital assets to ensure fair and effective regulation. Furthermore, I would like to express my concern about the potential harm to the environment caused by the proposed rules. The SEC should consider the environmental impact of any regulation it proposes. It is essential to strike a balance between investor protections and sustainability, and to ensure that the regulatory framework does not inadvertently incentivize or perpetuate activities detrimental to our environment. Additionally, I believe that the proposed rules lack proportionality. The SEC should carefully assess the potential effects of the regulations on different stakeholders, including small businesses and individual investors. Striking the right balance between protection and proportionality can foster a healthy investment ecosystem. I urge the SEC to ensure that the proposed rules are not politically disfavored, granting fair treatment to all market participants. The regulatory framework and its enforcement should be impartial and objective, free from any bias or influence. Furthermore, I advocate for a sufficient transition period to allow market participants to comply with the new rules. A one-year transition period, as proposed by the SEC, may not provide adequate time for businesses to adjust their practices. A longer transition period would promote smoother implementation and minimize disruption in the industry. I also raise concerns about the proposed penalties. It is essential that penalties imposed be reasonable and proportionate to the violation. Stringent penalties without reasonable justifications would burden investment advisers and hinder the industry's growth. To ensure the proposed rules align with legislative intent, it is crucial for the SEC to carefully consider and incorporate congressional goals and priorities. The rulemaking process should reflect the legislative intent and the SEC's primary mission of protecting investors. Furthermore, the proposed rules create unnecessary complexity. The SEC should strive to simplify the regulations and minimize the administrative burden on investment advisers. Clear and concise rules enhance compliance and facilitate effective oversight. I would also like to express my disappointment in the limited opportunity for public comment. Robust public participation is essential for the rulemaking process to benefit from diverse perspectives and expertise. The SEC should institute policies that enable broader public engagement and allow ample time for interested parties to provide substantial comments. In the previous stages of this rulemaking process, I feel that the SEC's response to comments has been inadequate. Meaningful engagement with public comments is crucial in achieving balanced regulation. I encourage the SEC to more thoroughly address and incorporate the concerns and suggestions voiced by the public. One issue that merits attention is the difficulty of updating information in a rapidly changing industry. The SEC should consider implementing an efficient mechanism for advisers to update relevant information in a timely manner, without excessive administrative burdens. Moreover, the proposed rules should ensure efficient resource allocation. The SEC should consider allocating its resources and enforcement efforts in a manner that effectively addresses the highest risks and promotes investor confidence. Regulatory approaches should be carefully calibrated to achieve maximum impact. I believe that the proposed rules may lead to an unfair distribution of benefits. It is important to strike a balance that ensures all market participants have equitable access to the benefits the regulations aim to provide. Measures should be in place to prevent any unintended concentration of benefits or advantages. Additionally, limited access to relevant data may hinder effective oversight. The SEC should work towards enhancing data accessibility and transparency to enable more accurate and comprehensive analysis of market activities. This will help facilitate evidence-based regulation and protect investors more effectively. Ensuring consistency in the application and enforcement of the proposed rules is vital. Clear guidance and standards should be established to promote consistency across different enforcement actions. Efforts should be made to minimize any inconsistencies that may arise due to varying interpretations among advisers and regulators. I am also concerned about the inefficiency of the proposed dispute resolution process. The SEC should consider implementing a streamlined and effective mechanism for resolving disputes, ensuring fair treatment for all parties involved. Well-designed dispute resolution processes can provide meaningful recourse for investors and promote confidence in the financial system. Furthermore, there may be a potential delay in tax refund processing due to the implementation of the proposed rules. The SEC should collaborate closely with other relevant agencies to mitigate any adverse impacts on taxpayers and ensure timely and efficient tax administration. It is crucial to consider the potential harm to small businesses that may result from the proposed rules. Regulatory requirements should be scaled appropriately to avoid disproportionately burdensome compliance costs for smaller advisers. Flexibility and tailored approaches that consider the unique challenges faced by small businesses will support entrepreneurship and innovation. Promoting accountability is important in enhancing investor protections. The SEC should ensure that the proposed rules do not inadvertently reduce accountability in the industry. Striking the right balance between regulation and accountability is vital for instilling confidence and protecting investors' interests. I am disappointed to find that the proposed rules lack a reasoned basis. The SEC should provide robust support for the policy choices and the regulatory framework it proposes. Well-reasoned and evidence-based rules will foster trust and ensure the efficient and effective functioning of the capital markets. Furthermore, the proposed rules may limit investor choice. It is important for investors to have access to a variety of investment options to suit their individual needs and risk appetites. Regulatory measures should be carefully crafted to encourage competition and enable diversified investment choices. To facilitate a smooth transition, phased-in compliance periods should be considered. A phased approach will allow market participants to adapt to the new regulatory requirements without undue disruption, ensuring continuity of client services. When formulating regulations, it is vital to uphold the importance of voluntary compliance. Rules should be designed to incentivize advisory industry participants to proactively comply, rather than relying solely on enforcement measures. Voluntary compliance ensures ongoing adherence to high standards and reduces the need for more rigorous enforcement actions. It is important to consider potential unintended consequences of the proposed rules. Careful evaluation and scenario analysis should be conducted to address any undesirable outcomes that may arise as a result of the implementation. Continual monitoring and adjustment of the rules is necessary to mitigate any unintended negative consequences. I deeply regret that the notice and comment period has been insufficient to facilitate thorough participation and engagement from the public. Extending the comment period will allow market participants and interested parties to contribute their insight, experiences, and expertise, resulting in more substantiated regulations. The SEC's proposed rules fail to adequately account for legislative history. It is important to understand the historical context and purpose behind the existing rules to ensure the new regulations align with the original intent. By doing so, the SEC can prevent any unintended deviations or misinterpretations. The estimated compliance costs associated with the proposed rules may be underestimated. It is essential to conduct comprehensive cost assessments that take into account the wide variation in current custodial practices and existing internal controls. Such a thorough evaluation will ensure realistic and accurate cost estimation. The SEC should avoid duplicating reporting requirements that may unnecessarily burden investment advisers. Streamlining and harmonizing reporting obligations across different regulatory frameworks will reduce duplication and enhance operational efficiency for advisers. Finally, it is crucial that any regulatory action taken aligns with the principles of necessity and propriety. The SEC should ensure that the proposed rules serve their intended purpose without overly restricting market activities or stifling innovation. A balanced approach will foster a thriving investment environment while upholding investor protection. In conclusion, I urge the SEC to address the concerns regarding potential overreach of regulatory authority and provide clearer guidelines for digital assets or crypto. Furthermore, I encourage the SEC to consider the environmental impact, ensure proportionality, promote accountability, and enhance investor choice. By taking these factors into account, the SEC can foster healthy and vibrant capital markets while safeguarding investor interests. Thank you for considering my public comment.