Oct. 23, 2023
Dear SEC, I am writing to provide my public comment on the proposed rule amendments titled "Safeguarding Advisory Client Assets" (Release No. IA-5413; File No. S7-10-21). I appreciate the Securities and Exchange Commission's (SEC) efforts to enhance investor protections and address gaps in the custody rule. However, I have concerns regarding the adequacy and effectiveness of the proposed rules, particularly in relation to self-custody solutions and the treatment of digital assets. Firstly, I would like to address the inadequate consideration of self-custody solutions. The proposed rules do not sufficiently account for the evolving landscape of asset management where self-custody options are gaining popularity. User-controlled asset management has become a significant aspect of the digital asset space, with the potential for increased security, transparency, and user empowerment. Unfortunately, the proposed rules do not provide specific provisions or guidance to address this emerging trend adequately. This lack of recognition impedes the development and adoption of self-custody solutions, limiting investor choice and potentially creating unnecessary regulatory burdens. In the case of digital assets, particularly cryptocurrencies, it is important to acknowledge their transformative potential within the finance industry. Blockchain technology has revolutionized the way we transact, store value, and manage assets. Despite their immense potential, digital assets face regulatory uncertainties that impact their widespread adoption. The proposed rules ought to explicitly address the unique characteristics and challenges associated with digital assets, providing a regulatory framework that fosters innovation while safeguarding investor interests. By doing so, the SEC can encourage responsible growth and promote a level playing field within the digital asset ecosystem. Furthermore, I encourage the SEC to consider measures that balance investor protection while encouraging innovation and competition. The proposed regulations should foster an environment that enables responsible entities to enter the market and offer custodial services that reflect changing investor demands. This can be achieved through guidance that mitigates compliance burden for both traditional custodians and emerging fintech firms, provided they adhere to robust security protocols and meet appropriate regulatory standards. Ensuring healthy competition within the custodial space will drive innovation, efficiency, and ultimately benefit investors. Moreover, I recommend the SEC provide further clarity on the applicability and implementation of the proposed rules. Clear guidelines would mitigate compliance uncertainty and provide advisers with the necessary tools to navigate the evolving regulatory landscape while preserving investor protection. In conclusion, I urge the SEC to thoroughly reconsider and address the aforementioned concerns in the final rule. Adequate consideration of self-custody solutions, particularly in the context of digital assets, is critical to fostering a vibrant and inclusive investment landscape. By adopting a thoughtful and comprehensive approach, the SEC can strike an appropriate balance between regulation and innovation, benefiting both investors and the broader economy. Thank you for considering these concerns. If there are any further areas of the proposal you would like me to address or if you have any general questions, I would be happy to provide additional input. Sincerely, Samuele Padalino