Oct. 18, 2023
Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Subject: Public Comment - "Safeguarding Advisory Client Assets" Proposal Dear Securities and Exchange Commission, I am writing to provide my public comment on the "Safeguarding Advisory Client Assets" proposal from the Securities and Exchange Commission. I appreciate the Commission's efforts to enhance investor protections and address gaps in the custody rule. However, I have several concerns regarding the proposed rule amendments that I believe need to be addressed for a more balanced approach. Qualified Custodian Protections: One particular area of concern is the proposed enhancements to the protection of client assets, especially in relation to crypto assets and demonstrating exclusive control. While I understand the importance of safeguarding these assets, the complexities associated with digital assets and distributed ledger technology may pose significant challenges for investment advisers. Compliance with these provisions may need additional resources and expertise, which could burden smaller advisory firms. Certain Assets Unable to be Maintained with a Qualified Custodian: Furthermore, the requirements for safeguarding assets that cannot be maintained with a qualified custodian may place an undue burden on investment advisers. The proposed amendments necessitate enhanced record keeping, separation of duties, and regular reviews. Implementing these measures could require additional time and resources for advisers, potentially impacting their ability to provide efficient services to their clients. Segregation of Client Assets: The segregation of client assets from the adviser's assets is crucial for investor protection. However, I believe it is essential to acknowledge the potential operational challenges it may present for investment advisers. Proper implementation of segregation procedures will be crucial to ensure compliance, but it may require additional infrastructure and operational adjustments for firms of all sizes. Additionally, I would like to express my concerns about the impact of the proposed regulations on digital assets or crypto. Digital assets such as cryptocurrencies have been at the forefront of financial innovation. However, regulatory uncertainties surrounding these assets can stifle their growth and deter investment. I urge the Commission to carefully consider the impact of the proposed rule on this emerging field and strive for a balanced regulatory framework that promotes innovation while protecting investors. Another concern I have relates to the potential impact on small businesses. The proposed reporting requirements could impose significant burdens on small advisory firms and startups. Implementing these requirements, especially the tracking of personal identifiable information, may cause financial strain and hinder innovation within these sectors. It is crucial to avoid creating unnecessary barriers that disadvantage innovative projects and harm their competitiveness. Furthermore, privacy and data security should be carefully considered in light of the proposed regulations. Requiring the collection and storage of sensitive financial data and social security numbers by multiple third parties raises concerns about data breaches and unauthorized access to personal information. Robust measures should be put in place to ensure the secure handling of sensitive information, and privacy protections should be adequately addressed in the proposed rule. Moreover, the increased collection of user information under the proposed regulations may create opportunities for identity theft. The storage of taxpayer information without proper safeguards, particularly in the decentralized finance space, poses significant risks to individuals. I urge the Commission to undertake a comprehensive analysis of the potential risks associated with collecting and storing sensitive information and implement measures to mitigate identity theft-related concerns. Additionally, it is essential to consider the international impact of the proposed regulations. As digital assets and decentralized protocols are global in nature, the regulations should clearly delineate reporting requirements for protocols operated outside the United States and account for users located outside the U.S. Ambiguities in this regard may create unnecessary compliance challenges for globally operating platforms and disrupt the functioning of the ecosystem. Lastly, the proposed regulations utilize poorly defined terms such as platform, software, and ledger, which are susceptible to various interpretations. Furthermore, the definition of terms like wallet and validator does not align with their technical meaning, creating confusion within the industry. Clarity in terminology is essential to ensure consistent application of the regulations and effective communication between all stakeholders. In conclusion, I appreciate the efforts of the Securities and Exchange Commission to enhance investor protections through the "Safeguarding Advisory Client Assets" proposal. However, I believe it is crucial to address the concerns I have raised to ensure a fair and effective regulatory framework. The Commission should carefully consider the challenges posed by the evolving landscape of digital assets, the potential impact on small businesses, safeguarding sensitive information, international implications, and clarification of terminology. Thank you for considering my comments. It is my hope that these points will contribute to a robust and balanced regulation that encourages innovation while safeguarding investors and the integrity of the financial markets. Sincerely, Marcel Richelieux