Oct. 16, 2023
Dear Chair Gensler, I am writing to express my serious concerns and reservations regarding the U.S. Securities and Exchange Commission's (SEC) proposed rule titled "Safeguarding Advisory Client Assets". These concerns are based on a thorough examination of the proposal and its potential implications on various sectors within the U.S. financial markets. Potential Disruption and Indirect Regulation of CFTC-Oversighted Entities: The proposal could inadvertently lead to regulation of entities overseen by the Commodity Futures Trading Commission (CFTC), potentially destabilizing the U.S. derivatives and commodities markets and posing risks to key sectors like agriculture. Possible Interference with Derivatives Markets and Advisory Clients: The proposal might disrupt the operations of futures commission merchants, commodity trading advisors, commodity pool operators, and swap dealers, impacting their ability to provide clients access to derivatives markets despite existing robust customer protection rules imposed by the CFTC. Adverse Impact on Commodity Markets: The proposal's impractical verification process for each commodity transaction could adversely affect commodity markets, including those for agricultural, energy, and digital commodities, potentially causing systemic harm to the U.S. economy. Conflict with Investor Protection Goals: While the proposal aims to ensure investor protection, its current form may conflict with this objective by potentially impeding investor access to various services, assets, and well-established markets. Economic and Jurisdictional Concerns: The proposal significantly deviates from traditional custody practices, substantially increasing the cost of offering custodial services and utilizing SEC's authority to regulate registered investment advisors (RIAs) to regulate entities beyond its jurisdiction. Reshaping Traditional Custody and Impact on Digital Assets: The proposal would fundamentally reshape traditional custody practices, potentially undermining fundamental functions of banks and causing harmful impacts on the digital asset ecosystem. Given the gravity of these concerns and the potential for widespread impact across various sectors, I strongly urge the Commission to reconsider and withdraw the proposal. Additionally, I recommend that any future proposed rulemaking should be based on a comprehensive economic analysis, taking into account all relevant costs and developed in close consultation with primary regulators of impacted entities, markets, and products. Thank you for considering my perspective. I am ever hopful this will trigger further discussions to explore alternative approaches that prioritize robust investor protection while avoiding unintended consequences. Sincerely, J. Reed