Oct. 14, 2023
Dear SEC, 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 it is essential to differentiate between these assets and digital assets. The SEC should consider adopting a more nuanced approach that takes into account the technological advancements and unique features of cryptocurrencies. Secondly, the proposed rule fails to recognize the existing regulatory framework surrounding cryptocurrencies and digital assets. The Financial Crimes Enforcement Network (FinCEN) has already established robust anti-money laundering (AML) and know-your-customer (KYC) requirements for virtual currency businesses. These regulations ensure that adequate safeguards are in place to prevent illicit activities. Imposing additional custody requirements on investment advisers would create unnecessary duplication and regulatory burden. The SEC should adopt a more nuanced approach that recognizes the decentralized nature of cryptocurrencies, the existing regulatory framework, the challenges associated with securing digital assets, and the global nature of the industry. Imposing additional custody requirements without considering these factors would be redundant, burdensome, and could stifle innovation. It is crucial for the SEC to strike a balance between investor protection and fostering growth and innovation in the cryptocurrency and digital asset industry. The proposed rule does not adequately address the challenges and complexities associated with securing digital assets. Unlike traditional assets, digital assets are stored in digital wallets and require specialized security measures such as multi-signature authentication and cold storage solutions. These security measures are already implemented by reputable cryptocurrency custodians and exchanges to protect client assets. Imposing additional custody requirements without considering the existing security practices would be redundant and burdensome for investment advisers. Additionally, the proposed rule fails to recognize the global nature of the cryptocurrency and digital asset industry. Cryptocurrencies operate on a decentralized network that transcends geographical boundaries. Imposing strict custody requirements on investment advisers would put them at a disadvantage compared to their international counterparts. It is crucial for the SEC to adopt a regulatory approach that aligns with international standards and promotes innovation in the industry. Moreover, the proposed rule could stifle innovation and hinder the growth of the cryptocurrency and digital asset industry. The industry has shown tremendous potential for economic growth and job creation. By imposing stringent custody requirements, the SEC risks discouraging investment advisers from engaging with cryptocurrencies and digital assets, limiting the opportunities for investors and stifling innovation in this rapidly evolving sector. In conclusion, while investor protection is important, the proposed legislation by the SEC regarding the safegding of advisory client assets in the cryptocurrency and digital asset industry is overly burdensome and fails to consider the unique characteristics of these assets. The SEC should adopt a more nuanced approach that recognizes the decentralized nature of cryptocurrencies, the existing regulatory framework, the challenges associated with securing digital assets, and the global nature of the industry. Imposing additional custody requirements without considering these factors would be redundant, burdensome, and could stifle innovation. It is crucial for the SEC to strike a balance between investor protection and fostering growth and innovation in the cryptocurrency and digital asset industry. Regards, James