Oct. 24, 2023
Dear Securities and Exchange Commission, I am writing to provide my feedback on the proposed rule, "Safeguarding Advisory Client Assets," which aims to enhance the protection of client assets and address gaps in the custody rule. While I appreciate the SEC's efforts to improve investor protections, I have concerns about the lack of flexibility provided for innovative custodial solutions, particularly in the digital asset industry. The proposed rule sets rigid requirements for custodial arrangements, which may not account for the unique characteristics of digital assets. As technological advancements continue to reshape the financial landscape, it is essential to foster innovation and allow for the development of novel custodial solutions that can effectively safeguard client assets. By limiting custodial options to traditional institutions, the SEC may inadvertently stifle competition and hinder progress in the digital asset space. Alternative custodial solutions, such as blockchain-based platforms, have demonstrated potential in enhancing security and transparency in asset custody. These solutions could offer greater assurances of asset integrity and real-time auditing capabilities, ultimately benefiting investors. It is essential that regulatory frameworks adapt to technological advancements and encourage the implementation of robust security measures unique to digital assets. Rather than imposing strict limitations, the SEC should consider providing guidance and flexibility to allow for the development of innovative custodial solutions that are able to meet the intended investor protection objectives of the proposed rule. I urge the SEC to engage in meaningful discussions with industry stakeholders to better understand the potential benefits and risks associated with innovative custodial solutions. Collaboration and an open dialogue between regulators and market participants will help strike the right balance between investor protection and fostering innovation. It is worth noting that the SEC's mission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. Embracing innovation in custodial solutions aligned with these goals can enhance market efficiency, investor confidence, and the overall competitiveness of the United States' financial industry. In conclusion, while I commend the SEC's focus on enhancing investor protections through the proposed rule, I raise concerns about the limited flexibility for innovative custodial solutions. To truly address the rapidly evolving landscape of digital assets and ensure robust investor safeguards, the SEC should consider formulating a regulatory framework that encourages and supports innovative custodial options. This will promote competition, drive technological advancements, and ultimately benefit investors. Thank you for considering my feedback. I hope that you thoroughly evaluate the potential impact of the proposed rule on the digital asset industry, taking into account the importance of flexibility and innovation. Sincerely Alan Flynn