Oct. 30, 2023
Patrick Naredo 10/30/23 Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: Safeguarding Advisory Client Assets - Proposed Rule Dear Sir/Madam, I am writing to express my concerns regarding the Securities and Exchange Commission's (SEC) proposed rule on Safeguarding Advisory Client Assets. While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, there are certain aspects of the proposal that require further clarity and consideration, particularly in relation to the definition and treatment of digital assets. Digital assets, such as cryptocurrencies, have emerged as a transformative force in the financial industry, driven by the advancements in blockchain technology. However, despite their growing importance, there remains a lack of regulatory clarity around their classification and treatment. The proposed rule fails to provide clear guidance on what constitutes a digital asset, which could potentially lead to confusion and misinterpretation among investment advisers. One key concern is that the existing laws pertaining to securities and the Howey test, which has traditionally been used to determine if an asset is a security, do not adequately apply to digital assets. The unique characteristics of cryptocurrencies, such as decentralized control and utility token functions, pose challenges in determining their regulatory status. It is therefore crucial for the SEC to provide clear definitions and guidelines that address the specific nature of digital assets. Furthermore, the proposed rule does not adequately touch upon the custodial responsibilities and challenges associated with digital assets. While the rule acknowledges the application of the custody rule to crypto assets, it does not provide comprehensive guidance on how investment advisers can demonstrate exclusive control over these assets, which is a critical factor for safeguarding client assets. Without clear guidelines, investment advisers may face difficulties in complying with the rule and adequately protecting client assets. I strongly urge the SEC to take into account the unique attributes and challenges of digital assets and provide specific guidance that addresses their treatment and safeguarding within the proposed rule. This will not only enhance investor protections but also foster innovation and regulatory certainty within the burgeoning digital asset industry. In conclusion, while I appreciate the SEC's attention to investor protections and the aim to address the safeguarding of advisory client assets, I believe that further clarity is needed, particularly regarding the treatment of digital assets. By providing clear definitions and guidelines that account for the unique nature of these assets, the SEC can play a significant role in establishing a conducive regulatory environment that promotes both investor protection and innovation within the digital asset space. Thank you for considering my comments. I appreciate the opportunity to provide feedback on this important matter. Sincerely, Patrick Naredo Patrick