Oct. 18, 2023
Grant Campbell 18/10/2023 Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Subject: Proposed Rule - Safeguarding Advisory Client Assets Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule regarding the safeguarding of advisory client assets. While I acknowledge the importance of enhancing investor protections and addressing gaps in the custody rule, I have concerns about certain aspects of the proposed rule and its potential impact on investment advisers and the industry as a whole. Scope of Rule: Expanding the rule's coverage to include a broader range of investments held in a client's account could have significant implications for investment advisers. This expansion may require additional safeguards and compliance measures, placing an additional burden on investment advisers to protect these assets effectively. Qualified Custodian Protections: The proposed enhancements to the protection of client assets, specifically in regards to crypto assets, present significant challenges for investment advisers. Demonstration of exclusive control and compliance with these provisions may require additional resources and expertise, particularly when dealing with complex and evolving technologies. Certain Assets Unable to be Maintained with a Qualified Custodian: The requirements for safeguarding assets that cannot be maintained with a qualified custodian place a burden on investment advisers. While enhanced recordkeeping, separation of duties, and regular reviews are important, they may necessitate additional time, resources, and operational adjustments. Segregation of Client Assets: The requirement to segregate client assets from the adviser's assets is crucial for investor protection. However, the proper implementation of segregation procedures may pose operational challenges for investment advisers. Clear guidance and flexibility in implementing these procedures will be essential to ensure compliance without unduly burdening industry participants. Amendments to the Surprise Examination Requirement: While the proposed changes to the surprise examination requirement aim to safeguard client assets, investment advisers may incur additional costs in implementing written agreements with independent public accountants for these examinations. It is important to carefully balance the benefits of this requirement with the associated compliance costs. Amendments to the Investment Adviser Recordkeeping Rule: The proposed amendments to the recordkeeping rule intend to enhance oversight and investor protection. However, investment advisers may face increased administrative burdens in maintaining the required records related to client notifications, custodian information, and transactions. Clear guidelines and proportional requirements are necessary to prevent excessive time and resource allocation for recordkeeping purposes. Changes to Form ADV: The proposed changes to Form ADV seek to enhance transparency and regulatory oversight. While this goal is commendable, investment advisers may need to allocate additional resources to comply with the reporting requirements, potentially straining smaller businesses and limiting their ability to innovate. Consideration should be given to the potential impact on small entities and the associated compliance costs. Transition Period and Compliance Date: The proposed one-year transition period for compliance with the new rule is appreciated, as it recognizes the need for investment advisers to adapt their practices. However, the varying compliance dates based on assets under management may introduce implementation challenges for advisers with diverse client bases. A smooth transition is essential, and consideration should be given to minimizing disruption for investment advisers during this period of adjustment. Additionally, I would like to address my concerns related to digital assets or crypto. While digital assets, such as cryptocurrency, offer transformative potential in the finance industry, regulatory uncertainties pose challenges. The proposed rule should provide clearer guidance and regulations specific to digital assets, taking into account their unique characteristics, challenges, and technological advancements. Furthermore, it is crucial to consider the impact of the proposed rule on small businesses. The additional reporting requirements may impose significant costs on small businesses and startups that would not otherwise be required to track personal identifiable information, potentially stifling innovation and putting these projects at a disadvantage. While investor protection is important, the SEC should carefully weigh the benefits against the burdens placed on smaller entities. In conclusion, I appreciate the SEC's effort to enhance the safeguarding of advisory client assets. However, I urge the Commission to carefully consider the concerns and issues raised, such as those related to the scope of the rule, qualified custodian protections, certain assets unable to be maintained with a qualified custodian, segregation of client assets, amendments to the surprise examination requirement, amendments to the investment adviser recordkeeping rule, changes to Form ADV, transition period, digital assets or crypto, and the impact on small businesses. The SEC should strive to strike a balance between investor protection and industry compliance burden, ensuring that the final rule is effective and promotes innovation and market growth. Thank you for considering my comments on this important proposal. I trust that the Securities and Exchange Commission will carefully review all public feedback to create a rule that balances investor protection with the needs of the investment adviser industry. Sincerely, Grant Campbell