Oct. 30, 2023
Dear Sir/Madam, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets" (Release No. IA-6992; File No. S7-01-20). While I appreciate the Securities and Exchange Commission's (SEC) efforts to enhance investor protections and address gaps in the custody rule, I believe there are certain aspects of the proposal that lack clarity and may have unintended consequences, particularly regarding the definition of digital assets. The proposal fails to provide clear guidance on what constitutes a digital asset, resulting in confusion and potential misinterpretation. Given the rapid growth and transformative impact of digital assets, such as cryptocurrencies built on blockchain technology, it is imperative that regulatory frameworks offer clear guidelines for investment advisers. Digital assets have emerged as an increasingly popular investment option, attracting significant investments from retail and institutional investors alike. However, the regulatory uncertainties surrounding these assets pose challenges for advisers and investors. Without a clear definition and framework, advisers may struggle to accurately assess and manage the risks associated with digital assets, potentially exposing client assets to undue risks. To ensure effective investor protection and foster a fair and transparent market, it is crucial for the proposed rule to provide precise and comprehensive definitions for digital assets. This will help advisers navigate the complexities of the digital asset landscape and establish robust safeguards that align with existing regulations. Additionally, the proposal should address the unique challenges posed by digital assets, particularly in terms of custodial control and asset verification. As digital assets are often held in virtual wallets and utilize cryptographic systems, demonstrating exclusive control becomes a significant challenge. The proposal should consider appropriate mechanisms and protocols for demonstrating exclusive control over digital assets as a means to safeguard client assets. The proposal maintains the core purpose is to protect client assets from loss. Unfortunately, many of the SEC’s actions and charges have resulted in the opposite occurring, harming, or destroying investors by creating the very loss the SEC’s mission was to protect them from. Actions and charges by the SEC against existing crypto currencies, persons or companies is generally perceived by the markets as a guilty charge until proven innocent which totally harms all those invested. Surely this can be better managed by prevention, by clearer regulation and understanding for all to abide by and then any concerns to be addressed fist through informative discussions, advise and deliberation for correction rather than taking the easier path of just issuing charges resulting in client asset loss. In conclusion, while the proposed rule aims to enhance investor protections, I think it is vital to address the lack of clarity regarding the definition and treatment of digital assets. By providing clear guidelines and acknowledging the unique characteristics of digital assets, the SEC can promote a safe and regulated environment for both investment advisers and their clients. Thank you for considering my concerns and comments on this important matter. Sincerely, Stephen Brown