Oct. 23, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets." While I commend the SEC for aiming to enhance investor protections and address gaps in the custody rule, I have several concerns regarding the rule proposals. First and foremost, there seems to be an inadequate consideration of the unique properties of cryptocurrency. The SEC does not take into account the decentralized nature and technological complexities of cryptocurrency, leading to impractical regulatory requirements. The proposed rule fails to provide guidance on how investment advisers can effectively demonstrate exclusive control over crypto assets, as well as addressing the challenges in proving possession of private keys. Without a clear framework for safeguarding cryptocurrency, investment advisers and clients face undue burdens and uncertainty. Furthermore, the proposed regulations suffer from poorly defined terms. The use of undefined terms such as "platform," "software," and "ledger" opens the door to multiple interpretations, leaving room for confusion and inconsistent application. Moreover, the definitions provided for terms like "wallet" and "validator" do not accurately reflect their technical meaning in the context of cryptocurrency. This lack of clarity hinders investment advisers' ability to comply with the rules and undermines the goal of investor protection. Additionally, I have concerns about the cost and burden associated with the proposed rules. While I understand the importance of safeguarding client assets, the economic analysis provided by the SEC does not fully account for the potential financial impact on investment advisers. Compliance costs will vary greatly depending on current custodial practices and existing controls, making it difficult to estimate the true economic effects. It is essential to strike a balance between investor protections and the potential burden imposed on investment advisers. In terms of recordkeeping requirements, the proposed rule amendments to Rule 204-2 entail a significant burden for investment advisers. The estimated total burden of 3,347,352 hours and external cost of $217,333,279 raises concerns about administrative expenses and the overall feasibility of compliance. Although transparency and regulatory oversight are important, these requirements should be proportionate to the objectives of the rule and avoid imposing undue hardships on investment advisers. Moreover, it is crucial that the SEC ensures that the proposed rule does not impede market competition and capital formation. While investor protection is paramount, overly burdensome regulations may deter new participants and hinder innovation. To strike a balance, the SEC should thoroughly assess the potential impact on advisory services, competition, and the cost structure for qualified custodians. In conclusion, I urge the SEC to address these concerns in order to enhance the effectiveness and practicality of the proposed rule "Safeguarding Advisory Client Assets." Considering the unique properties of cryptocurrency and providing clearer definitions will alleviate confusion and promote compliance. Additionally, the SEC should carefully balance investor protections with the economic burden placed on investment advisers. By ensuring reasonable alternatives and soliciting input from the public, the SEC can refine the rule to best serve both investors and the industry. Thank you for considering my comments. Sincerely, F. Rosario