Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" (Release No. IA-5469; File No. S7-13-20) regarding the safeguarding of client assets by investment advisers. While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I have several concerns related to the lack of clarity on the definition of digital assets, specifically cryptocurrencies, and its potential impact on the industry. The proposed rule includes discussions on how investment advisers should safeguard client assets, including digital assets such as cryptocurrencies. However, it is important to distinguish that not all cryptocurrencies are securities. Cryptocurrencies, built on blockchain technology, have emerged as a transformative force in the financial industry with the potential to reshape markets, improve efficiency, and foster financial inclusion. Therefore, it is crucial to establish a clear and comprehensive definition of digital assets, explicitly noting that cryptocurrencies that do not meet the definition of securities should not be subject to the same regulatory requirements as traditional securities. The lack of clarity and regulatory uncertainties surrounding digital assets, including cryptocurrencies that are not securities, pose challenges for both industry participants and regulators. It is imperative for the SEC to provide clear and actionable guidelines to ensure that investment advisers can adequately navigate this often complex landscape and provide their clients with the highest level of protection. To address the lack of clarity, I urge the SEC to engage in a comprehensive and collaborative dialogue with industry participants, technologists, and legal experts to develop a well-defined framework for digital assets, particularly cryptocurrencies that are not securities. By fostering open communication and seeking insights from those actively involved in the digital asset ecosystem, the SEC would encourage innovation while simultaneously safeguarding investor interests. Furthermore, the proposed rule should consider the diverse range of digital asset offerings and distinguish between different types of digital assets when establishing regulatory requirements. Cryptocurrencies, security tokens, and utility tokens each possess unique characteristics and use cases, warranting tailored regulatory approaches. It is crucial to differentiate between cryptocurrencies that are securities and those that are not, and establish appropriate regulatory frameworks for each category. To ensure proper investor protection, any safeguards related to digital assets should also consider the nature of blockchain technology itself. Blockchain provides immutable and transparent records of transactions, making it inherently resistant to fraud and manipulation. Recognizing the unique properties of this technology would enable investment advisers to leverage its benefits in safeguarding client assets without unnecessary regulatory burdens. In conclusion, I urge the SEC to provide greater clarity on the definition of digital assets, explicitly noting that cryptocurrencies that do not meet the definition of securities should be subject to different regulatory requirements. Additionally, establishing a clear regulatory framework that considers the unique characteristics and potential of blockchain technology would foster innovation, enhance investor protection, and position the United States as a global leader in the evolving digital asset landscape. Thank you for considering my comments on this important proposal. Sincerely, Kevin