Oct. 14, 2023
Hello, As an advocate for the cryptocurrency and digital asset industry, I strongly oppose the proposed legislation by the SEC regarding the safeguarding of advisory client assets. While investor protection is of utmost importance, it is crucial to recognize the potential overreach by the SEC in this matter. The proposed rule, 17 CFR 275.223-1, seems to impose unnecessary burdens on investment advisers and fails to consider the unique characteristics of cryptocurrencies and digital assets. Firstly, it is important to note that cryptocurrencies and digital assets operate on decentralized networks, which inherently provide a high level of security and transparency. The existing laws and regulations already address the custody of traditional assets, and attempting to apply the same framework to digital assets may not be appropriate. The SEC should consider the distinct nature of these assets and develop regulations that are specifically tailored to their characteristics. Furthermore, the proposed rule fails to acknowledge the existing regulatory framework surrounding cryptocurrencies and digital assets. The Financial Crimes Enforcement Network (FinCEN) has already established guidelines for virtual currency businesses, including requirements for anti-money laundering (AML) and know-your-customer (KYC) procedures. These regulations adequately address the concerns related to investor protection and safeguarding client assets. Imposing additional requirements through the SEC's proposed rule would only create duplication and unnecessary regulatory burden. Additionally, the proposed rule does not take into account the rapid pace of innovation in the cryptocurrency and digital asset industry. The SEC should be cautious not to stifle technological advancements and hinder the growth of this emerging sector. By imposing stringent custody requirements, the proposed rule may discourage investment advisers from engaging with cryptocurrencies and digital assets, limiting the opportunities for investors and impeding the development of this innovative industry. Moreover, it is important to recognize that the existing laws and regulations already provide a framework for investor protection in the cryptocurrency and digital asset space. The Securities Act of 1933 and the Securities Exchange Act of 1934, among others, establish disclosure requirements and prohibit fraudulent activities in the offering and trading of securities. These laws are sufficient to address any concerns related to investor protection without the need for additional regulations specifically targeting digital assets. Furthermore, the proposed rule fails to consider the potential impact on small businesses and startups in the cryptocurrency and digital asset industry. These entities often operate with limited resources and imposing onerous custody requirements may create significant financial burdens. It is crucial for regulators to foster an environment that encourages innovation and entrepreneurship, rather than imposing unnecessary barriers that disproportionately affect smaller players in the market. In conclusion, while the SEC's intention to safeguard advisory client assets is commendable, the proposed legislation regarding cryptocurrencies and digital assets is a step in the wrong direction. The unique characteristics of these assets, the existing regulatory framework, the potential stifling of innovation, and the impact on small businesses all point to the need for a more nuanced approach.The SEC should recognize that cryptocurrencies and digital assets operate on decentralized networks, providing a level of security and transparency that is distinct from traditional assets. Attempting to apply the same custody framework to these assets may not be appropriate and could hinder their development. Instead, the SEC should consider developing regulations that are specifically tailored to the characteristics of cryptocurrencies and digital assets, ensuring investor protection without stifling innovation. Lastly, it is important to consider the potential impact on small businesses and startups in the cryptocurrency and digital asset industry. These entities often operate with limited resources and imposing onerous custody requirements may create significant financial burdens. It is crucial for regulators to foster an environment that encourages innovation and entrepreneurship, rather than imposing unnecessary barriers that disproportionately affect smaller players in the market. The proposed legislation by the SEC regarding the safeguarding of advisory client assets in the cryptocurrency and digital asset industry is concerning. The unique characteristics of these assets, the existing regulatory framework, the potential stifling of innovation, and the impact on small businesses all point to the need for a more nuanced approach. The SEC should consider developing regulations that are specifically tailored to the characteristics of cryptocurrencies and digital assets, ensuring investor protection without stifling innovation. Additionally, the existing regulatory framework already addresses concerns related to investor protection in this space, and imposing additional requirements would only create duplication and unnecessary regulatory burden Signed - F.M Oct - 14 - 2023 .