Oct. 30, 2023
February 12, 2022 Securities and Exchange Commission 100 F Street NE Washington, DC 20549 Re: Safeguarding Advisory Client Assets Proposal Release No. IA-5889; File No. S7-11-19 To Whom It May Concern, I am writing to provide my thoughts and concerns regarding the Securities and Exchange Commission's (SEC) proposed rule on the Safeguarding of Advisory Client Assets. While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I have reservations about certain aspects of the proposed rule amendments that may have unintended negative consequences. Firstly, I am concerned about the potential negative impact on market liquidity for digital assets. The proposed rules expand the coverage to include a broader range of investments held in a client's account, including digital assets or cryptocurrencies. While digital assets have become increasingly popular and have the potential to transform the financial landscape, regulatory uncertainties still surround this emerging asset class. The proposed rules may hinder market liquidity for digital assets, making it more difficult for investors to buy and sell these assets. It is essential to strike a balance between investor protection and allowing for innovation and development in this rapidly evolving space. Additionally, the proposed rule amendments address how investment advisers safeguard client assets, particularly in the context of digital assets. While safeguarding client assets is crucial, it is important to consider the unique characteristics and challenges associated with digital assets. The Commission should collaborate with market participants and industry experts to develop tailored solutions that address the custody concerns specific to digital assets while also considering the nature of blockchain technology, which underlies many digital assets. Moreover, the proposed rule acknowledges the challenges in demonstrating exclusive control over digital assets. It is important to provide further guidance and clarity on what constitutes exclusive control, especially given the unique features of digital assets, such as the ability to facilitate peer-to-peer transfers. The rule should consider the evolving technological advancements in the custody of digital assets and encourage innovation while still maintaining adequate safeguards. Furthermore, I urge the SEC to carefully consider the economic analysis and assess the costs and benefits of the proposed rule amendments. While the proposed safeguards enhance investor protections and reduce the risk of asset loss, they may also impose compliance costs on investment advisers. These costs may vary depending on the current custodial practices and existing controls. Striking a balance between investor protection and minimizing undue burden on investment advisers is crucial for fostering a healthy and vibrant advisory industry. In conclusion, while I support the SEC's objectives of enhancing investor protections, I believe that the proposed rule amendments should carefully consider and address the unique challenges associated with digital assets. It is important to strike a balance between safeguarding client assets and allowing for innovation and development in this rapidly evolving space. Collaboration and dialogue with market participants and industry experts will be vital in ensuring that the final regulations effectively protect investors while also fostering the growth and stability of the financial industry. Thank you for considering my concerns. I appreciate the opportunity to provide input on this important proposal. Sincerely, Sent with Proton Mail secure email.