Oct. 22, 2023
Public Comment: Dear Securities and Exchange Commission, I am writing to provide my comments on the proposed rule "Safeguarding Advisory Client Assets," which aims to enhance investor protections and address gaps in the custody rule for investment advisers. While I appreciate the SEC's effort to strengthen safeguards for client assets, I have some concerns about certain aspects of the proposed rule. One major concern is the lack of industry expertise in drafting the proposal, particularly regarding digital assets and cryptocurrencies. The SEC's limited understanding of the unique characteristics of digital assets could result in overly burdensome regulations that stifle innovation and hinder the growth of this transformative technology. It is crucial for the SEC to engage with industry stakeholders and seek their expertise when developing regulations related to digital assets. By doing so, the SEC can strike a delicate balance between investor protection and fostering innovation. Digital assets, such as cryptocurrencies, have rapidly emerged as new investment and asset classes. Built on blockchain technology, these assets have the potential to revolutionize the financial industry by increasing efficiency, transparency, and accessibility. However, regulatory uncertainties surrounding digital assets remain a significant challenge. The proposed rule should adopt a nuanced approach to address the unique characteristics and risks associated with digital assets, rather than subjecting them to overly broad and generic regulations. Furthermore, the SEC should carefully consider the impact of the proposed rule on digital asset custodians. The custody of digital assets presents unique challenges due to the lack of physical and centralized control. Many digital asset custodians have already implemented robust security measures and innovative custody solutions to ensure the safety and integrity of client assets. The SEC should take these industry best practices into account and provide clear guidelines on how digital assets can be safeguarded effectively, rather than imposing burdensome requirements that may impede the growth of this nascent industry. In addition to digital assets, I would also like to express my concern about how the proposed rule addresses the application of custody requirements to traditional investment assets. While it is important to enhance investor protections, the SEC should be mindful of the compliance costs associated with the proposed changes. Investment advisers already face substantial regulatory burdens, and adding additional requirements may strain resources and hinder their ability to provide quality services to investors. The proposed rule's amendments to the surprise examination requirement, while well-intentioned, may also impose a heavy compliance burden on investment advisers. The requirement to implement a written agreement with an independent public accountant for surprise examinations could be costly, especially for smaller firms. The SEC should consider providing alternative means to achieve the objective of safeguarding client assets without unduly burdening investment advisers, particularly those with limited resources. In conclusion, while I support the SEC's goal of enhancing investor protections and addressing gaps in the custody rule, I urge the SEC to carefully consider the unique characteristics and risks associated with digital assets, as well as the potential compliance costs for investment advisers. The proposed rule should strike a balanced approach that fosters innovation, promotes investor protection, and avoids unduly burdensome requirements. By engaging with industry experts and stakeholders, the SEC can develop more effective and pragmatic regulations. Thank you for considering my comments. If there are any further areas of concern that I can address, or if you have any general questions regarding the proposal, please do not hesitate to reach out. Sincerely, Kevin Bedene