Oct. 31, 2023
Dear Sir/Madam, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" (Release No. IA-5678; File No. S7-09-20) issued by the Securities and Exchange Commission (SEC). Firstly, I would like to commend the SEC's efforts to enhance investor protections and address gaps in the custody rule through this proposed rule. It is crucial to safeguard client assets, especially in today's rapidly evolving financial landscape. One area of concern I have identified relates to the lack of clarity in the definition of digital assets. The proposal does not provide clear guidance on what constitutes a digital asset, leading to confusion and potential misinterpretation. Considering the significant impact of digital assets, such as cryptocurrencies that are built on blockchain technology, it is essential for the SEC to provide precise definitions to ensure consistent and accurate implementation of the rule. In light of this concern, I kindly request the SEC to clarify the definition of a "digital asset broker" and provide specific examples of situations where a person or entity might qualify as a digital asset broker. This clarification would offer guidance to investment advisers and promote regulatory compliance while accommodating the complexities and unique characteristics of digital assets. Digital assets have transformed the financial industry, providing new opportunities for investors and innovative solutions for various financial activities. However, regulatory uncertainties related to these assets can hinder their full potential and pose challenges for market participants. Apart from this specific concern, the proposed rule appears to encompass a comprehensive range of topics relevant to safeguarding client assets. It addresses issues related to the scope of the rule, qualified custodian protections, assets unable to be maintained with a qualified custodian, segregation of client assets, investment adviser delivery of notice to clients, amendments to the surprise examination requirement, changes to the investment adviser recordkeeping rule and Form ADV, transition periods, and economic analysis. I appreciate the SEC's consideration of the economic analysis, benefits, costs, efficiency, competition, and capital formation effects of the proposed rule. It is challenging to estimate the economic effects accurately due to varying practices among investment advisers. Nevertheless, I recognize that these revisions aim to mitigate principal-agent problems and market failures. Radoslaw Banach