Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets" (File Number: S76-40610) and its potential overreach of regulatory authority. While it is crucial to enhance investor protections and address gaps in the custody rule, there are certain aspects of the proposed rule that require further consideration and revision. One significant concern is the use of poorly defined terms throughout the proposed regulations. Terms such as "platform," "software," and "ledger" are mentioned without clear definitions, making them open to interpretation. Additionally, terms like "wallet" and "validator" are defined in a manner that does not accurately describe their technical meaning. This lack of clarity and specificity creates confusion, leaving room for misinterpretation and potential compliance challenges. It is essential that any regulations put forward by the SEC provide clear and precise definitions to ensure consistency and effective implementation. Furthermore, the proposed rule seems to encroach upon areas that should fall under the jurisdiction of other regulatory agencies. The inclusion of crypto assets and the challenges surrounding the demonstration of exclusive control are complex issues that would benefit from the expertise of agencies specifically focused on cryptocurrency and blockchain technologies. To avoid regulatory overlaps and ensure a comprehensive and cohesive approach, it is necessary for the SEC to collaborate and coordinate with other relevant agencies in formulating rules that address these concerns. Another area of concern is the economic analysis of the proposed rule. While the SEC acknowledges the challenge of estimating economic effects due to varying practices among investment advisers, it is crucial to conduct a thorough and robust evaluation of the potential costs and benefits. The proposed rule may impose significant compliance costs on investment advisers, especially small entities, which could have unintended consequences such as decreased competition and hindered capital formation. It is imperative that the economic analysis considers a broad range of factors to accurately assess the potential impact on the economy as a whole. In addition, the proposed rule's burden on small investment advisers should be carefully evaluated. Though most small advisers registered with state authorities would not be affected, there are several SEC-registered small advisers who would fall under the purview of the proposed rule. As such, a detailed analysis of the projected compliance requirements, costs, and potential impacts on small entities is necessary to ensure that the proposed rule is appropriately tailored and considers the unique challenges faced by smaller investment advisers. I appreciate the SEC's efforts to solicit public input and consider alternative approaches to the proposed rule. However, I believe there is a need for further clarity, collaboration with relevant agencies, and a comprehensive evaluation of the economic impact and burden on small entities. I urge the SEC to carefully consider these concerns and make necessary revisions to the proposed rule to ensure an effective and balanced approach to safeguarding advisory client assets. Thank you for considering my comments. If you require any further clarification or have any additional questions, please do not hesitate to reach out. Sincerely, Nathan