Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I understand that the aim of this rule is to enhance investor protections and address gaps in the custody rule, I believe that certain aspects of the proposal may have unintended consequences and impose burdensome requirements on investment advisers. One particular concern I have is the scope of the rule in relation to digital assets, specifically cryptocurrencies. Digital assets, like cryptocurrencies, have become increasingly prevalent in the financial industry, and it is crucial for regulators to provide a clear framework to ensure investor protection. However, the proposed rule does not provide sufficient guidance on how investment advisers should address the unique challenges posed by these assets, particularly regarding the demonstration of exclusive control. Furthermore, the proposed rule places a burden on exchanges to comply with market integrity standards, which may be challenging given the decentralized nature of blockchain transactions. The lack of clarity and specific requirements related to digital assets may lead to confusion and hinder the growth and innovation in this emerging market. It is important that any regulations pertaining to digital assets balance investor protection with fostering innovation and ensuring market efficiency. Additionally, the economic analysis included in the proposal acknowledges the challenges of estimating the economic effects. I believe it is crucial for the SEC to conduct a thorough assessment of the potential costs and benefits associated with each provision of the proposed rule. The compliance costs for investment advisers should be carefully considered, as they may disproportionately impact smaller firms and hinder their ability to serve clients effectively. Moreover, I am concerned about the potential burden placed on small entities, such as small advisers registered with state authorities. It is important to ensure that the proposed rule takes into account the unique circumstances and challenges faced by these small advisers. Additional guidance or simplification may be necessary to prevent undue compliance burdens for these entities. In conclusion, while I recognize the need to enhance investor protections and address gaps in the custody rule, I urge the Securities and Exchange Commission to provide more guidance specifically pertaining to digital assets. It is important to strike a balance between investor protection and fostering innovation in this rapidly evolving landscape. Additionally, a thorough and comprehensive economic analysis should be conducted to assess the potential costs and benefits of the proposed rule, taking into consideration the specific impact on small entities. Thank you for considering my concerns. I hope that the SEC will carefully evaluate the feedback received during the comment period and make appropriate adjustments to ensure the proposed rule achieves its intended objectives without imposing unnecessary burdens. Sincerely, Wayne Baldwin