Oct. 30, 2023
To Whom It May Concern, I am writing to express my concerns regarding the "Safeguarding Advisory Client Assets" proposal presented by the Securities and Exchange Commission (SEC). While I appreciate the intent of the rule to enhance investor protections and address gaps in the custody rule, I believe there are certain aspects of the proposal that require further consideration and revision. One particular concern I would like to emphasize is the inadequate consideration of the unique properties of cryptocurrency. The SEC's proposed rule fails to acknowledge the decentralized nature and technological complexities of cryptocurrencies, consequently resulting in impractical regulatory requirements. Digital assets are still a nascent and evolving market, and imposing a one-size-fits-all approach on cryptocurrency custodians may inadvertently stifle innovation and hinder market growth. By not effectively differentiating between traditional custodial assets and cryptocurrencies, the proposed rule places undue burdens on investment advisers dealing with digital assets. The SEC should recognize the challenges associated with demonstrating exclusive control in decentralized networks and adopt a framework that appropriately aligns with the characteristics of cryptocurrency. This would encourage responsible innovation while ensuring the protection of investor assets. Additionally, I would like to stress the significance of maintaining a balance between safeguarding client assets and minimizing compliance costs. While the proposed rule aims to enhance investor protections, the magnitude of compliance costs for investment advisers may vary considerably depending on their current custodial practices and existing controls. It is crucial to carefully assess and mitigate the potential economic burdens imposed on investment advisers without compromising the safety and wellbeing of clients. Furthermore, I urge the SEC to consider any unintended consequences the rule might have on market efficiency, competition, and capital formation. While enhanced investor protection is essential, overly burdensome regulations could create unnecessary barriers to entry for smaller advisory firms and reduce competition in the market. A careful examination of the balance between regulatory requirements and their impact on market dynamics is essential to foster a thriving advisory industry. Moreover, I would like to highlight the need for effective coordination between industry participants and regulators. Engaging in dialogue with key stakeholders, including investment advisers, custodians, and market experts, can provide valuable insights when developing and revising regulatory frameworks. Such collaboration will ensure that the proposed rule is dynamic, relevant, and proportionate to the ever-changing landscape of the advisory industry. In conclusion, I appreciate the SEC's efforts to enhance investor protections through the "Safeguarding Advisory Client Assets" proposal. Nevertheless, I strongly urge the Commission to consider the unique properties of cryptocurrency and tailor the regulatory requirements to accommodate the technological complexities of the digital asset market. Additionally, I encourage the SEC to strike a balance between safeguarding client assets and minimizing compliance costs, taking into account market efficiency and competition. Ultimately, an inclusive and collaborative approach, gathered through open communication with industry participants, is critical to develop a robust and effective regulatory framework. Thank you for considering my comments on this rule proposal. I look forward to the SEC's ongoing efforts towards increasing investor protections while fostering a vibrant and competitive advisory industry.