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 intention to enhance investor protections, I believe that the rule fails to adequately consider the unique properties of cryptocurrency and imposes onerous and impractical regulatory requirements. Digital assets, such as cryptocurrency, have emerged as a transformative force in the financial industry. Built on blockchain technology, these assets offer decentralization, transparency, and enhanced security. However, the proposed rule does not adequately account for the decentralized nature and technological complexities of cryptocurrency. One specific concern is the impracticality of demonstrating exclusive control over digital assets. The rule requires investment advisers to safeguard these assets by maintaining ongoing confirmation from a qualified custodian, confirming its exclusive control and ownership. However, the decentralized nature of cryptocurrency makes it challenging to prove exclusive control, as ownership is determined through a decentralized network rather than a centralized custodian. This requirement places an unreasonable burden on investment advisers and may deter them from engaging with digital assets, hindering innovation in this rapidly evolving space. Furthermore, the proposed rule's definition of digital assets is overly broad and lacks specificity. It is essential to differentiate between various types of digital assets and recognize that not all pose the same custody risks. Failing to provide clear guidance on the classification of digital assets may result in investment advisers struggling to comply with ambiguous requirements and may stifle investment in this emerging asset class. In addition to the concerns related to digital assets, there are broader issues with the proposed rule that warrant consideration. The economic analysis provided by the SEC acknowledges the challenge of estimating the economic effects due to varying practices among investment advisers. This variability should be taken into account to ensure that the rule does not disproportionately burden smaller advisers. Moreover, the proposed compliance requirements, particularly the extensive recordkeeping obligations, may impose significant costs on investment advisers. While it is crucial to enhance investor protections, the SEC should strike a balance between safeguarding client assets and avoiding an excessive compliance burden that may discourage entrepreneurship and capital formation in the advisory industry. Lastly, I believe that the rule should include more comprehensive guidance for investment advisers on custodial practices and due diligence for safeguarding assets that cannot be maintained with qualified custodians. Enhanced recordkeeping, separation of duties, and regular reviews, as outlined in the proposal, are important steps. However, further clarity is needed to ensure consistent implementation across the industry. In conclusion, I urge the SEC to reconsider the proposed rule on Safeguarding Advisory Client Assets, particularly in regards to digital assets and the burdens placed on investment advisers. It is essential to foster an environment that encourages innovation and investment in emerging technologies while ensuring strong investor protections. I appreciate the opportunity to provide feedback and commend the SEC for soliciting public comments on this important matter. Thank you for your attention to this matter. Sincerely,