Oct. 22, 2023
Dear Sir/Madam, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I have several concerns and issues that I believe need careful consideration. Firstly, I would like to address the lack of clarity in the proposed rule regarding the definition of digital assets. As we are witnessing the rapid development and adoption of digital assets, particularly cryptocurrencies, it is crucial that the regulatory framework provides clear guidance on what constitutes a digital asset. This lack of clarity creates confusion and potential misinterpretation, posing risks to both investors and investment advisers. I urge the SEC to provide a comprehensive and unequivocal definition of digital assets in the final rule to mitigate these uncertainties. Digital assets, such as cryptocurrencies, have transformed the financial landscape. However, they also present unique challenges in terms of safeguarding client assets. The proposal acknowledges these challenges but falls short in providing specific measures to address them effectively. Investment advisers require clear guidelines on how to safeguard digital assets, including protocols for demonstrating exclusive control. Without such guidance, advisers may struggle to implement robust security measures, leaving client assets vulnerable to loss or unauthorized access. I strongly urge the SEC to work closely with industry experts to develop comprehensive guidelines for the safeguarding of digital assets, ensuring investor protections are not compromised in this rapidly evolving landscape. Furthermore, while the proposed rule provides exceptions for certain assets that cannot be maintained with a qualified custodian, it imposes enhanced recordkeeping, separation of duties, and regular reviews. While these measures aim to protect client assets, they also increase the compliance burden on investment advisers. Considering the diversity of investment advisory firms, with varying sizes and resources, it is important to ensure that the rule strikes a balance between safeguarding client assets and the compliance costs incurred by advisers, particularly small entities. I encourage the SEC to thoroughly evaluate the cost-benefit analysis of these requirements and consider implementing appropriate exemptions or adjustments for smaller firms to prevent undue burdens on their operations. Additionally, the proposed rule emphasizes the segregation of client assets from the adviser's assets, prioritizing the protection of client assets. While I fully support this objective, I believe further clarity is needed regarding exceptions to this segregation requirement. Investment advisers often engage in various investment strategies and may need flexibility in managing client accounts efficiently. It is essential that the SEC provides specific guidance on permissible exceptions to segregation requirements and ensures that the rule strikes an appropriate balance between investor protection and operational effectiveness. Regarding the amendments to the surprise examination requirement, I appreciate the inclusion of written agreements with independent public accountants. This not only enhances the protection of client assets but also reduces the risk of loss. However, I urge the SEC to ensure that the cost of complying with these requirements remains reasonable, particularly for smaller investment advisory firms, who may face disproportionate burdens compared to larger entities. In conclusion, while the SEC's proposed rule "Safeguarding Advisory Client Assets" demonstrates a commitment to enhancing investor protections, there are areas that require further consideration. Specifically, I request that the SEC provides clarity on the definition of digital assets and develops comprehensive guidelines to safeguard these assets effectively. Additionally, it is essential to strike a balance between safeguarding client assets and the compliance costs incurred by investment advisers, particularly for smaller firms. Lastly, I urge the SEC to provide clarity on exceptions to the segregation requirement and ensure that the cost of complying with requirements remains reasonable for all entities. Thank you for considering my concerns. I hope that the SEC will carefully review and address these issues to further strengthen investor protections within the advisory industry. Sincerely, Tyler