Oct. 22, 2023
To the SEC, I hope this letter finds you well. I wanted to take a moment to share my thoughts on the SEC's proposed rule on "Safeguarding Advisory Client Assets." As someone who is deeply passionate about promoting innovation in the financial industry, I have some concerns about the lack of flexibility for custodial solutions, especially when it comes to digital assets. First and foremost, I want to commend the SEC for acknowledging the importance of safeguarding client assets and addressing the gaps in the current custody rule. However, I believe that the proposed rules may unintentionally hinder competition and progress in the digital asset space by not allowing for innovative custodial solutions. We cannot ignore the fact that digital assets, such as cryptocurrencies, have emerged as a game-changing force in finance. These assets, powered by blockchain technology, present exciting opportunities for investors and have the potential to reshape traditional financial systems. However, the regulatory uncertainties surrounding digital assets create significant challenges for market participants. While I understand the need for robust regulatory frameworks, the proposed rule does not seem to consider the unique characteristics of digital assets and the innovative custodial solutions being developed to safeguard them. By imposing rigid requirements that do not reflect the intricate nature of blockchain technology, there is a risk of suppressing competition and inhibiting progress in this rapidly evolving field. Encouraging innovation in the custodial space is essential for providing secure and reliable storage solutions for digital assets. However, the lack of flexibility in the proposed rule limits custodians' ability to adapt and implement new technologies that can enhance the security and accessibility of these assets. Moreover, the definition of a "qualified custodian" should not be limited to traditional custodial arrangements. Rather, it should acknowledge custodians using advanced cryptographic techniques and decentralized storage mechanisms that can offer enhanced security and resilience. Additionally, the demonstration of exclusive control over digital assets, as currently outlined in the proposal, poses challenges that may not be directly applicable to this new landscape. Exploring alternative methodologies for proving custody, such as leveraging advanced cryptographic techniques for transparent yet secure verification, would be a valuable consideration. Furthermore, the regulatory framework should acknowledge the use of smart contracts in custody arrangements. Smart contracts, deployed on blockchain networks, can automate compliance and provide greater visibility into custody activities. Integrating this technology into the regulatory landscape can streamline processes and reduce the risk of human error. To sum up, while I commend the SEC's efforts to safeguard advisory client assets, I believe that the proposed rule lacks the flexibility needed for custodial solutions in the digital assets space. Striking a balance between regulation and innovation is crucial for fostering healthy competition and progress. It is imperative that the SEC recognizes the unique characteristics of digital assets and their custodial arrangements to develop a regulatory framework that encourages innovation while ensuring investor protection. Thank you for taking the time to consider my comments. I sincerely hope that my perspective contributes to the development of balanced and effective regulations in the dynamic field of digital assets. If there is any opportunity for further public engagement or if you have any questions, I am eager to provide additional input. Sincerely, Matthew Sutch Sent from my iPhone