Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to provide my feedback and concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I appreciate the SEC's efforts to enhance investor protections, I believe that the proposed rules lack flexibility for innovative custodial solutions, particularly in the digital asset industry. One of the key aspects of the proposed rule is the requirement for investment advisers to maintain client assets with a qualified custodian. While this approach may be suitable for traditional investment assets, it fails to consider the unique characteristics of digital assets. The digital asset industry, including cryptocurrencies, blockchain-based assets, and digital securities, has been rapidly evolving, and custodial solutions have emerged to address the specific needs of these assets. However, under the proposed rule, investment advisers would be limited to using only qualified custodians, potentially excluding innovative custodial solutions that provide robust security measures for digital assets. This lack of flexibility stifles competition and hinders progress in the digital asset industry. Furthermore, the application of the proposed rule to digital assets raises challenges in demonstrating exclusive control, which is a significant concern for investment advisers operating in this space. The SEC should take into consideration the technological advancements and best practices developed specifically for digital asset custody. By incorporating alternative approaches to safeguarding digital assets, the SEC can strike a balance between investor protection and promoting innovation and competition within the digital asset industry. In its mission to protect investors and facilitate efficient markets, the SEC must keep pace with technological advancements and support the development of safe and reliable custodial solutions that meet the unique needs of digital assets. Failing to do so could hinder the growth of this emerging industry and put investors at risk. To address this concern, I propose that the SEC allows investment advisers to use innovative custodial solutions for digital assets, provided that they demonstrate the safeguards put in place to protect client assets. This approach would encourage competition and drive the development of cutting-edge custodial solutions, ultimately benefiting investors and enhancing the overall integrity of the market. In conclusion, while the proposed rule on "Safeguarding Advisory Client Assets" aims to enhance investor protections, its lack of flexibility for innovative custodial solutions in the digital asset industry is a significant concern. The SEC should recognize and support the specialized custodial solutions developed for digital assets and provide a framework that accommodates advancements in technology and industry best practices. By doing so, the SEC can ensure investor protection while promoting innovation and competition in the rapidly evolving digital asset industry. Thank you for considering my comments. I look forward to seeing the SEC's response to the concerns raised by industry participants and other stakeholders.