Oct. 24, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets." While I appreciate the goal of enhancing investor protections and addressing gaps in the custody rule, I believe there are several issues that need to be addressed to ensure a fair and effective regulation that takes into account the unique properties of cryptocurrency and respects individual privacy. Firstly, I would like to raise the issue of inadequate consideration of the unique properties of cryptocurrency. It is evident that the SEC does not fully understand the decentralized nature and technological complexities of cryptocurrency, leading to impractical regulatory requirements. Cryptocurrency operates on a decentralized network, making it difficult to fit within the traditional framework of custodial requirements. Imposing strict custodial rules on cryptocurrency assets may hinder innovation and growth in this emerging sector. It is crucial for the SEC to engage with industry experts to develop a practical and effective regulatory approach that acknowledges the unique characteristics of cryptocurrency. Moreover, I have concerns regarding the privacy and safety implications of the proposed rule. By requiring extensive disclosure of sensitive financial data and social security numbers to numerous third parties, the rule compromises the privacy and security of individuals. The proposed rule's focus on sharing detailed information with custodians raises legitimate concerns about potential data breaches and unauthorized access. It is essential for the SEC to prioritize the protection of personal information and explore alternative methods for ensuring investor protections without compromising individual privacy. Furthermore, I would like to emphasize the need for a more balanced and nuanced approach to the regulation. While it is important to enhance investor protections, it is equally crucial to avoid imposing unnecessary burdens on investment advisors. The proposed rule fails to strike a balance between protecting client assets and ensuring a conducive environment for investment advisors to operate effectively. The SEC should take into account the compliance costs for qualified custodians and the potential impact on competition and advisory services. In conclusion, I urge the SEC to reconsider certain aspects of the proposed rule "Safeguarding Advisory Client Assets." It is vital to provide adequate consideration to the unique properties of cryptocurrency, address privacy concerns associated with extensive data sharing, and strike a balance between investor protection and facilitating effective advisory services. By engaging with industry experts and the public, the SEC has the opportunity to develop a regulation that effectively safeguards client assets while promoting innovation in the rapidly evolving cryptocurrency ecosystem. Sincerely, Michael Smith Sent from Proton Mail for iOS