Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I appreciate the Securities and Exchange Commission's efforts to enhance investor protections and address gaps in the custody rule, I am apprehensive about the potential negative impact on the development and adoption of open finance platforms, particularly in the realm of digital assets or cryptocurrencies. Digital assets, such as cryptocurrencies, are built on blockchain technology and have the potential to transform the financial landscape by providing secure, efficient, and decentralized means of conducting transactions. However, these assets operate in a regulatory environment that is still evolving, and the proposed rules may unintentionally hinder their growth and limit the benefits of decentralized financial systems. One of my concerns lies in the scope of the proposed rule. While it is important to safeguard client assets, the definition of assets within the rule should be carefully evaluated to ensure it does not impede the development of innovative financial products. Open finance platforms often rely on unique digital assets that may not fit the traditional definition of securities or traditional financial instruments. Restrictive regulatory requirements could stifle the ability of such platforms to flourish and bring about meaningful changes to the financial industry. Furthermore, the rule's consideration of digital assets, like cryptocurrencies, must not overlook their unique characteristics and the challenges they present in terms of custody. The proposed rule must strike a delicate balance between protecting client assets and accommodating the decentralized nature of digital assets. By establishing fair rules that allow decentralized applications offering financial services to develop without compromising their neutral and self-governing properties, we can foster innovation while maintaining investor trust and protection. In addition, the paperwork reduction analysis should also factor in the potential impact on innovation and competition. The requirements imposed by the proposed rule may pose significant compliance costs for qualified custodians and inhibit the growth of smaller entities that play a vital role in driving innovation. It is crucial to consider whether these compliance costs outweigh the benefits and whether alternative approaches could achieve the same objectives with reduced burdens. To ensure an optimal regulatory framework for digital assets, it is essential to engage with industry experts, developers, and other stakeholders who can provide valuable insights on the unique challenges and opportunities associated with these emerging technologies. By seeking their input and considering alternative viewpoints, the Securities and Exchange Commission can be better equipped to strike the right balance and create regulations that encourage innovation while safeguarding investor interests. In conclusion, the proposed rules pertaining to the safeguarding of advisory client assets should take into account the potential negative impact on the development and adoption of open finance platforms, particularly those involving decentralized financial systems and digital assets. Regulatory clarity and fair rules are vital to ensure a thriving and innovative financial ecosystem. I encourage the Securities and Exchange Commission to carefully consider these concerns and engage in open dialogue with industry stakeholders to create a regulatory framework that fosters growth and protects investors. Thank you for considering my perspective on this important matter. Sincerely,