Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I understand the need to enhance investor protections and address gaps in the custody rule, some of the provisions in the proposed rule appear to exceed the SEC's regulatory authority and encroach on areas that should be regulated by other agencies. One area of concern for me is the treatment of digital assets or crypto-assets. It is understandable that the SEC aims to address the challenges posed by these innovative financial instruments, such as cryptocurrencies built on blockchain technology. However, the regulatory uncertainties surrounding digital assets require a more comprehensive approach that takes into account the jurisdiction and expertise of other relevant agencies. Digital assets have the potential to transform the financial landscape. They offer new investment opportunities, promote financial inclusion, and enhance transaction efficiency. However, their unique characteristics raise complex regulatory considerations that extend beyond the scope of the SEC's jurisdiction alone. To effectively regulate digital assets, collaboration among multiple regulatory agencies is necessary. These agencies should work together to develop a holistic regulatory framework that considers investor protection, legal certainty, and technological innovation. This approach would ensure consistent regulations while avoiding regulatory fragmentation that could stifle the growth of digital asset markets. Furthermore, it is crucial to strike a balance between regulation and fostering innovation. The SEC should be cautious not to over-regulate digital assets, as excessive regulatory burdens can hinder market development and deter responsible actors from engaging in innovative practices. The regulatory framework should prioritize investor protection while encouraging responsible innovation and market competition. In the spirit of regulatory cooperation, the SEC should consider engaging with other agencies, such as the Commodity Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN), to collaborate and harmonize regulations surrounding digital assets. This will help mitigate potential regulatory gaps and ensure a comprehensive and consistent approach to investor protection and market integrity. In conclusion, while the SEC's proposed rule on "Safeguarding Advisory Client Assets" is well-intentioned, certain aspects of the rule appear to exceed the SEC's regulatory authority. Specifically, regulating digital assets requires collaboration among various regulatory agencies to ensure comprehensive oversight and avoid hindering innovation. I urge the SEC to take a collaborative approach and work with other relevant agencies to develop a robust regulatory framework for digital assets that balances investor protection and fosters innovation. Thank you for considering my concerns, and I appreciate the opportunity to provide input on this important matter. Sincerely, Walter Rhodes