Oct. 30, 2023
Dennis Will Securities and Exchange Commission 100 F Street NE Washington, DC 20549 Subject: Public Comment on Safeguarding Advisory Client Assets Proposal Dear SEC, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I acknowledge the importance of enhancing investor protections and addressing gaps in the custody rule, I believe that the current proposal fails to provide sufficient clarity and guidance on certain critical aspects, particularly in relation to the definition of digital assets, such as cryptocurrencies. Digital assets, including cryptocurrencies, have emerged as transformative tools within the financial industry, leveraging blockchain technology to facilitate secure and transparent transactions. However, regulatory uncertainties surrounding the classification and treatment of digital assets create significant challenges for market participants. With this in mind, it is imperative that the proposed rule offers clear definitions and guidelines to eliminate confusion and potential misinterpretation. Furthermore, I am concerned about the potential impact of the proposed transition period. While a transition period is necessary for market participants to comply with new regulations, the duration outlined in the current proposal may be insufficient or excessive, depending on the specific circumstances. A more flexible approach, tailored to the unique needs of different participants, would ensure a smooth and orderly transition without undue disruptions to market functioning. Additionally, it is important to consider the implications of the proposed rule on accounting standards, auditing practices, and financial reporting requirements. It is crucial that the SEC collaborates closely with relevant accounting bodies to assess any potential complexities or increased costs that may arise as a result of the proposed rule. Such considerations are vital to ensure that the proposed rule is fully aligned with existing industry practices and does not impose undue burdens on advisory firms. Moreover, the interaction between the proposed rule and monetary policy must be carefully scrutinized. Potential impacts on inflation, economic growth, and financial stability should be assessed to minimize any unintended consequences arising from the implementation of the rule. I would also like to draw attention to the risk of industry fragmentation. Diverging regulatory standards or practices resulting from the proposed rule might contribute to fragmentation within the industry. This could include barriers to entry, reduced economies of scale, or impeded consolidation. To minimize these risks, it is crucial that the SEC engages in international coordination to align regulatory standards among jurisdictions whenever possible. Furthermore, the SEC should seek greater congressional involvement and oversight in the rulemaking process. Enhanced congressional participation is essential to ensure balanced and effective regulation that adequately addresses industry concerns while aligning with the legislative intent. It is also necessary to consider sector-specific concerns that may arise from the proposed rule. Limited analysis should focus on potential discrepancies in the impact of the rule on various industries, market segments, or participant categories to evaluate any potential unintended consequences. While recognizing the importance of safeguarding client assets, I am concerned about the administrative burden associated with the proposed rule. Increased paperwork, documentation, and recordkeeping requirements may divert resources away from other critical tasks within advisory firms, such as combating financial crime and promoting economic growth. Additionally, I am wary of potential regulatory overlap with other federal or state agencies. Any conflicts or duplications of regulations could give rise to inefficiencies, compliance burdens, and potentially conflicting requirements. Moreover, the proposed rule must strike a balance between ensuring regulatory compliance and protecting trade secrets or proprietary information. It is imperative that adequate safeguards are in place to prevent the compromise of valuable intellectual property, which may undermine innovation and contribute to competitive harm. Considering the growing importance of cybersecurity, it is essential to evaluate potential vulnerabilities introduced by the proposed rule. Expanded information sharing or increased storage of sensitive data should be accompanied by comprehensive cybersecurity measures to mitigate the risk of data breaches, hacking threats, and other malicious activities. Emergency situation preparedness is another critical consideration often neglected in regulatory frameworks. The proposed rule should ensure compatibility with emergency situations, such as financial crises, natural disasters, or pandemics, to maintain systemic stability and mitigate disruptions to client asset safeguarding. Clear guidance on evidentiary standards and steps to mitigate regulatory evasion opportunities introduced by the proposed rule is crucial. It is imperative that the rule does not inadvertently create new avenues for market manipulation or fraudulent schemes. Furthermore, the proposed rule should not detract resources from more critical regulatory tasks, jeopardizing efforts to combat financial crime, foster economic growth, and maintain market integrity. Resource allocation should be carefully considered to ensure that compliance with the proposed rule does not come at the expense of other crucial regulatory functions. Finally, I believe it is important to consider the potential impact of the proposed rule on public perception of the financial sector, regulatory bodies, and government policies. Transparency and effective communication are key to maintaining public trust and confidence in the financial industry. In summary, I urge the Securities and Exchange Commission to address the concerns raised above in order to ensure that the proposed rule on Safeguarding Advisory Client Assets strikes the right balance between investor protection and regulatory burden. Clarity, coordination with other agencies, and careful consideration of potential consequences are paramount to achieve the desired outcomes without stifling innovation or impeding market functioning. Thank you for considering my comments. I trust that, taking into account the concerns highlighted above, the SEC will enact a comprehensive rule that promotes investor confidence, safeguards client assets, and fosters responsible innovation within the financial industry. Sincerely, Dennis Will Phantastische Grüße aus Neustadt Dennis M. Will