Oct. 24, 2023
I am writing in response to the reopened comment period for proposed rulemaking regarding safeguarding advisory client assets. While protecting investor assets is crucially important, I am concerned the broad scope of the proposal could inadvertently impose impractical custodial requirements on registered investment advisors (RIAs) utilizing certain emerging technologies like blockchain and digital assets. Specifically, the proposed requirement for RIAs to maintain client assets with qualified custodians could be challenging to implement for decentralized blockchain networks and digital assets lacking centralized intermediaries. Unlike traditional custodians, technologies like decentralized finance protocols have assets stored directly on public blockchains instead of with a singular entity. I recommend the SEC narrow the scope of asset coverage or provide exemptions for digital assets intrinsically held in decentralized environments absent singular custodial entities. Sweeping novel asset classes whose fundamental nature precludes use of traditional custodians into restrictive custody rules could severely limit advisor utilization of new technologies offering client benefits. Prudent regulation aims to enhance investor protections. However, rigid custody rules on assets intrinsically lacking centralized custodial options could stifle beneficial financial innovation. I urge refining the proposal to avoid overreach into emerging areas. Please contact me if I can provide any further information on navigating digital asset safeguards amid decentralization. I hope we can find balanced solutions that safeguard investors while enabling continued evolution. I hope the SEC strongly reconsiders their stance on this matter. Please feel free to contact me if I can provide any further information. Sent from Proton Mail for iOS