Oct. 30, 2023
Dear Securities and Exchange Commission, RE: Safeguarding Advisory Client Assets Proposal I, Tony Henriquez, am writing to express my concerns and reservations regarding the "Safeguarding Advisory Client Assets" proposal recently put forth by the Securities and Exchange Commission (SEC). While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I believe that there are critical areas within this proposal that require further clarity and consideration. One particular area of concern is the lack of clarity on the definition of digital assets. The proposal fails to provide a comprehensive and precise definition for digital assets, leaving it open to multiple interpretations. Terms such as "platform," "software," and "ledger" are employed without clear definitions, allowing for confusion and potentially inaccurate interpretations. Furthermore, the way in which terms like "wallet" and "validator" are defined does not align with their technical meaning, adding to the ambiguity. This lack of clarity will undermine the effectiveness of the proposed rule, as it hampers the ability of investment advisers to accurately assess and safely manage digital assets on behalf of their clients. In order to fully address these concerns, I urge the SEC to provide well-defined terms and comprehensive guidance on the classification and treatment of digital assets. A precise and standardized definition is crucial for ensuring regulatory compliance and facilitating a clear understanding among investment advisers and other relevant parties. Additionally, I believe that certain terms used throughout the proposal are unnecessarily vague and open to a wide range of interpretations. For instance, the proposed rule relies on terms like "assets," "discretionary authority," and "exceptions" without clearly defining their parameters and practical applications. This lack of specificity creates uncertainty and opens the door for potential misinterpretation, thereby weakening the effectiveness of the regulatory framework. I strongly recommend that the SEC takes immediate steps to define these terms, ensuring a comprehensive and unambiguous understanding among all parties involved. Providing clear definitions will promote consistency and transparency, enabling investment advisers to make well-informed decisions and adequately protect the assets of their clients. Furthermore, while I acknowledge the SEC's efforts to mitigate potential conflicts of interest and enhance investor protections through the proposed amendments and recordkeeping requirements, I believe that the costs and burdens imposed on investment advisers need to be carefully evaluated. It is vital to ensure that the benefits of the proposed rule outweigh the significant compliance costs that may be incurred by investment advisers, especially small entities that may face disproportionate challenges in implementing these changes. I urge the SEC to conduct a thorough economic analysis to determine the actual costs and benefits to investment advisers and investors. This analysis should take into account the various sizes and complexities of advisory firms, as well as the potential impact on market competition and capital formation. This will help strike a balance between investor protections and the burden placed on investment advisers, ensuring that the proposed rule does not inadvertently hinder the efficiency and growth of the industry. In conclusion, while I recognize the importance of enhancing the safeguarding of client assets, I believe that the current proposal lacks the necessary clarity and specificity to effectively achieve this goal. I respectfully request the SEC to revise the proposed rule to include precise definitions of digital assets and other key terms, as well as undertake a comprehensive economic analysis to assess the true impact of the proposed rule on investment advisers and the broader financial market. Thank you for considering my concerns and conducting a thorough review of the Safeguarding Advisory Client Assets proposal. I look forward to continued dialog and the opportunity to provide additional input as necessary. Sincerely, Tony Henriquez