Oct. 31, 2023
Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Dear Sir/Madam, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). While I commend the SEC for its efforts to enhance investor protections and address gaps in the custody rule, I would like to express my concerns regarding the lack of clarity on the definition of digital assets within the proposal. Digital assets, particularly cryptocurrencies built on blockchain technology, have revolutionized the financial industry by offering decentralized and transparent solutions. However, the regulatory landscape surrounding digital assets remains uncertain, and this proposal, unfortunately, does not provide clear guidance on what constitutes a digital asset. This lack of clarity increases the potential for confusion and misinterpretation, which is detrimental to both investors and investment advisers. One of my primary concerns lies in the application of existing laws from 1932, such as the Securities Act and the Investment Company Act, to digital assets and smart contracts within the HEX, Pulsechain, and Pulsex subsets. These cutting-edge technologies operate on the principles of blockchain and utilize smart contracts to not only securely store and transfer assets but also facilitate decentralized financial transactions. However, these technologies do not necessarily fit neatly within the frameworks established by laws from nearly a century ago. The Howey test, originally established in a 1946 Supreme Court case, is frequently used to determine whether an investment constitutes a security. However, this test may not appropriately apply to the unique characteristics of digital assets and smart contracts. By not providing clear guidance on this matter, the proposal creates a regulatory environment that hampers innovation and inhibits the growth of emerging financial technologies. To effectively regulate digital assets, it is crucial to establish a framework that ensures investor protection while fostering innovation and technological advancement. I urge the SEC to address this issue and work towards providing a comprehensive definition of digital assets within the proposed rule. By developing clear guidelines, the SEC can provide certainty and legal clarity for investors, investment advisers, and the larger digital asset ecosystem. Additionally, it is essential for the proposed rule to account for the evolving nature of digital assets. The rapid pace of technological advancements makes it imperative for regulatory frameworks to remain adaptable. The SEC should consider establishing a dynamic approach that allows for continuous updates and modifications to accommodate the evolving digital asset landscape. In conclusion, while I appreciate the SEC's efforts to safeguard advisory client assets, I believe that addressing the lack of clarity on the definition of digital assets is crucial for the success of the proposed rule. By providing clear guidance on what constitutes a digital asset, the SEC can create a regulatory environment that fosters innovation, protects investors, and facilitates the growth of the digital asset ecosystem. Thank you for considering my comments. I trust that you will give due consideration to the concerns raised in this letter. Sincerely, Rauf Damargüç