Oct. 23, 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 SEC's efforts to enhance investor protections and address gaps in the custody rule, I believe there are certain aspects of the proposed rule that require further consideration and revision. I will be focusing my concerns on the topic of digital assets or crypto. As the use of digital assets, including cryptocurrencies, continues to grow, it is essential for the SEC to establish clear guidelines on how investment advisers should handle these assets. The proposed rule aims to address the application of the custody rule to crypto assets, but it falls short in providing sufficient clarity. Without precise definitions and guidelines, investment advisers may struggle to appropriately safeguard these assets, potentially putting clients' investments at risk. Furthermore, the proposed rule acknowledges the challenges in demonstrating exclusive control over crypto assets. However, it does not offer any specific solutions or alternatives for investment advisers to overcome these challenges. It is crucial for the SEC to provide practical guidance on how investment advisers can effectively demonstrate exclusive control, without imposing disproportionate burdens on the industry. Additionally, the proposed rule requires investment advisers to maintain enhanced recordkeeping for certain assets that cannot be maintained with a qualified custodian. While this requirement is commendable in ensuring proper oversight, it is essential for the SEC to consider the feasibility and practicality of these recordkeeping measures. Investment advisers should not be burdened with excessive administrative tasks that impede their ability to effectively serve their clients. In regards to the economic analysis, I appreciate the SEC's consideration of the costs and benefits associated with the proposed rule amendments. However, it is important to carefully evaluate the potential impact on the efficiency, competition, and capital formation in the advisory industry. Excessive compliance costs for qualified custodians could inadvertently deter competition and hinder the formation of innovative investment products and services. Moreover, the estimated burden of compliance for small entities raises concerns about the potential disproportionate impact of the proposed rule on these firms. It is crucial for the SEC to ensure that the rule does not create unnecessary barriers for small investment advisers, undermining their ability to compete in the market and serve their clients effectively. In conclusion, the SEC must provide clear and practical guidelines for investment advisers dealing with digital assets, and specifically cryptocurrencies. The proposed rule should address the challenges in demonstrating exclusive control over these assets and offer feasible solutions. Additionally, the economic analysis should consider the potential impact on efficiency, competition, and small entities. By carefully considering these concerns and providing comprehensive guidance, the SEC can ensure that the proposed rule adequately safeguards advisory client assets without stifling innovation or imposing excessive burdens. Thank you for considering my comments on this important issue. Sincerely, Gert Vanderloop Sent with Proton Mail secure email.