Oct. 23, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets" (File No. S7-36-21). While I understand that the intention behind this rule is to enhance investor protections, I would like to highlight several aspects of the rule that could potentially have negative impacts on the growth and development of decentralized finance (DeFi), particularly in relation to digital assets or cryptocurrencies. The proposed rule expands the coverage of assets held in a client's account, includes discretionary authority in custody, and provides exceptions for specific situations. However, the broad scope of the rule may inadvertently hinder the ability of investment advisers to navigate the complexities of digital assets. The decentralized nature of digital assets, such as cryptocurrencies, challenges the traditional custodial framework. Imposing regulatory requirements tailored for traditional financial assets onto decentralized networks may stifle innovation and limit the potential for financial inclusion. Furthermore, the rule addresses how investment advisers must safeguard digital assets, including crypto assets. Given the rapid pace of technological advancements in the digital asset space, it is crucial to adopt an approach that accommodates the unique characteristics of these assets while ensuring investor protections. In order to foster innovation and growth in the DeFi sector, it is essential that regulatory frameworks strike a balance between safeguarding client assets and allowing for continued experimentation. Additionally, the proposed rule's amendments to the surprise examination requirement and the investment adviser recordkeeping rule increase compliance costs for investment advisers. While investor protection is of utmost importance, it is necessary to carefully consider the economic impacts of these requirements. The burden of compliance should be proportionate to the risks involved, especially when it comes to nascent industries such as DeFi. To achieve a comprehensive regulatory framework for digital assets, it is crucial to engage with the industry and explore alternative approaches. Collaboration and dialogue between regulators, industry participants, and other stakeholders can help foster mutual understanding and develop rules that strike the right balance between protection and promotion of innovation. I encourage the SEC to create pathways for engagement with DeFi projects and other companies working with digital assets. This will ensure that regulatory decisions are informed by a deep understanding of the technologies and business models involved. In conclusion, I urge the Securities and Exchange Commission to consider the potential negative impact on decentralized finance and the unique challenges posed by digital assets when finalizing the "Safeguarding Advisory Client Assets" proposal. A nuanced and adaptable approach will not only protect investors but also foster innovation, financial inclusion, and economic growth. Thank you for considering my concerns. I appreciate the opportunity to provide input on this important matter. Sincerely, Dennis Marso