Oct. 24, 2023
Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 RE: Safeguarding Advisory Client Assets File Number S7-04-23 To Whom It May Concern, I am writing to submit a public comment regarding the proposed rule on the safeguarding of advisory client assets by investment advisers, as outlined in File Number S7-04-23. The goal of enhancing investor protection and addressing gaps in the custody rule is commendable; however, several concerns arise from the current proposal. Firstly, I wish to highlight the inadequate consideration given to the unique properties of cryptocurrency in the proposed rule. The decentralized nature and technological complexities of cryptocurrencies pose significant challenges. By failing to account for these characteristics, the Securities and Exchange Commission (SEC) risks imposing impractical regulatory requirements on investment advisers. It is crucial that any proposed regulation acknowledges and incorporates technological advancements, promoting innovation while preserving investor protection. Furthermore, I would like to suggest alternative proposals that achieve the same objective of safeguarding client assets, but with less burdensome measures. For instance, a requirement for investment advisers to maintain detailed records of crypto assets held on behalf of clients could serve as a more practical solution. This would allow for adequate custody control while providing necessary transparency for regulatory oversight without stifling industry growth. While the economic analysis provided by the SEC considers the costs and benefits of the proposed rule, it may be beneficial to revisit some assumptions. A more thorough cost-benefit analysis should be conducted to ensure the proposed rule is properly calibrated. It is essential to accurately assess the potential impact on investment adviser compliance costs, industry competition, and accessibility for all market participants. This would enable a truly comprehensive evaluation of the economic effects, ensuring the proposed regulations strike an appropriate balance. In addition, I urge the SEC to consider the concerns raised by various stakeholders regarding the Paperwork Reduction Act (PRA) analysis. The estimated burden of compliance costs outlined in Rule 223-1 appears to be overly excessive and may place an undue financial strain on investment advisers. A more accurate assessment of the costs associated with the proposed rule would be greatly appreciated to ensure the regulations are feasible for market participants. Furthermore, small investment advisers may face significant challenges when complying with the proposed rule amendments. As emphasized in the Initial Regulatory Flexibility Analysis, it is essential to consider and thoroughly evaluate the projected compliance requirements for small entities. Special attention should be given to mitigating any potential adverse effects that may disproportionately impact small advisers. To conclude, I respectfully request that the SEC take into account the unique properties of cryptocurrencies, explore alternative proposals that achieve similar objectives, conduct a more comprehensive cost-benefit analysis, and carefully review the estimated compliance costs for small investment advisers. By doing so, the SEC can strengthen investor protection while promoting innovation and market growth within the advisory industry. Thank you for the opportunity to provide feedback on this important matter. I trust that you will consider these concerns and suggestions to refine the proposed rule and ensure its effectiveness and practicality. Sincerely, Mike Williams