Oct. 22, 2023
Dear Sir/Madam, I am writing to provide my remarks and concerns on the proposed rule "Safeguarding Advisory Client Assets" issued by the Securities and Exchange Commission (SEC). As a concerned participant in the investment community, I firmly believe that investor protections should be comprehensive and nuanced, addressing the unique challenges that arise in the ever-evolving landscape of investment assets. While recognizing the importance of enhancing safeguards for client assets, I would like to highlight certain areas of the proposal that may warrant further consideration and refinement. One area that requires close attention is the inadequate consideration of the unique properties of cryptocurrency. The SEC's proposed rule fails to adequately account for the decentralized nature and technological complexities inherent in cryptocurrencies. These inherent characteristics present challenges in implementing impractical regulatory requirements that may stifle innovation in this rapidly growing sector. It is crucial for the SEC to take a tailored approach that strikes a balance between protecting investors and fostering the development of this transformative technology. Additionally, there are concerns regarding the proposed scope of the rule. While it aims to broaden coverage of investments held in a client's account, careful attention should be given to ensure that the expanded definition of assets does not inadvertently subject compliant investment advisers to unnecessary burden. Striking the right balance between regulatory oversight and maintaining an environment conducive to responsible investment practices is essential. Moreover, in addressing the issue of safeguarding assets that cannot be maintained with a qualified custodian, the SEC's proposal rightly emphasizes enhanced recordkeeping, separation of duties, and regular reviews. However, it is crucial for the proposed rule to further provide clarity and guidance regarding these requirements, ensuring that advisers understand the expectations while mitigating potential ambiguity that could hinder compliance efforts. The proposed rule's efforts to prioritize the segregation of client assets from those of the adviser are commendable. Nevertheless, to further enhance protection, it is vital for the SEC to develop a consistent and practical framework for exceptions, ensuring that the segregation requirement does not pose unintended operational challenges or significantly impede advisers' ability to conduct legitimate business activities. The amendments related to the surprise examination requirement are valuable in protecting clients' assets. However, it is important for the SEC to recognize that certain advisers, particularly those with discretionary authority, may already possess robust systems of internal control. The proposed exceptions for these advisers, as well as those with custody solely due to a standing letter of authorization (SLOA), should be further clarified to facilitate compliance efforts while maintaining investor protections. In considering the economic analysis, it is worth noting the potential effects of the proposal on investment advisory services, competition, and capital formation. While the proposed rule aims to increase efficiency and investor protections, it is important to strike a balance, ensuring that it does not excessively burden advisory firms or stifle the industry's ability to attract capital and provide essential services to clients. Furthermore, throughout the proposed rule, the Securities and Exchange Commission appropriately seeks input on possible alternatives or overlooked benefits and costs. I encourage the SEC to thoroughly consider all suggestions and feedback from interested parties, with particular emphasis on facilitating innovation, striking the appropriate regulatory balance, and reducing unnecessary burdens. As the SEC proceeds with this rule-making process, I would also like to take this opportunity to inquire if there are any general questions that arise from the proposal that I can assist in addressing. I value the opportunity to contribute to the regulatory process and appreciate your attention to these concerns. Thank you for considering my comments. I trust that the Securities and Exchange Commission will prioritize the necessary revisions and considerations to ensure that the final rule optimally protects investors while encouraging industry growth and adaptability. Please feel free to reach out for any further information or clarification. Sincerely, Oleg Muravyov