Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the "Safeguarding Advisory Client Assets" proposal. While I acknowledge the importance of enhancing investor protections and addressing gaps in the custody rule, I find several aspects of the proposed rule, particularly in relation to digital assets, lacking in clarity and potentially restrictive to innovation in the financial industry. One of my main concerns is the lack of clarity on the definition of digital assets. The proposal does not clearly distinguish between cryptocurrencies and traditional securities, leading to potential confusion and misinterpretation. It is crucial for the proposal to explicitly state that cryptocurrencies, which are not securities under existing regulations, are not subject to the same safeguards and custodial requirements as traditional securities. Moreover, the proposed rule raises challenges for investment advisers in effectively safeguarding digital assets, especially cryptocurrencies. While the rule recognizes the application of the safeguarding requirements to digital assets, it fails to provide detailed guidance or standards on how investment advisers can demonstrate exclusive control over cryptocurrencies. Given the unique characteristics of cryptocurrencies, such as cryptographic keys and decentralized networks, ensuring exclusive control becomes a complex task. The proposal should address these unique challenges and provide clear guidance on how investment advisers can effectively demonstrate exclusive control over cryptocurrencies while respecting the decentralized nature of this technology. Additionally, the proposal's emphasis on qualified custodian protections may impose significant burdens on investment advisers operating with digital assets, particularly cryptocurrencies. The requirement to meet qualified custodian standards for all digital assets, including cryptocurrencies, might be inappropriate or excessively costly. It is important to recognize that the custody of cryptocurrencies operates on decentralized networks and may not require the same level of custodianship as traditional securities. The proposal should consider providing more nuanced criteria or alternative approaches to safeguarding cryptocurrencies that appropriately balance investor protections with the unique characteristics of these assets. Furthermore, the economic analysis provided in the proposal should thoroughly consider the potential impact on innovation, competition, and capital formation in the digital asset space. Cryptocurrencies are driving technological advancements and creating new opportunities for investors and entrepreneurs. It is essential to foster an environment that encourages innovation and the development of emerging technologies in the financial industry. The proposal should carefully consider the potential impact on the growth and adoption of cryptocurrencies and ensure that the final rule does not hinder the progress of this innovative market. In closing, I believe that additional clarity, guidance, and flexibility are necessary in the proposed rule to effectively address the unique challenges posed by digital assets, specifically cryptocurrencies. It is important for the proposal to explicitly recognize that cryptocurrencies are not securities and provide appropriate safeguards and custodial requirements for these assets. I urge the Securities and Exchange Commission to carefully consider these concerns and engage in a constructive dialogue with stakeholders to ensure that the final rule strikes the right balance between investor protection and industry development. Thank you for considering my comments on this important proposal. Sincerely, Kevin