Oct. 25, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets." While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I have some concerns and issues that I believe need to be addressed in order to ensure a fair and effective regulatory framework. Firstly, I am concerned about the inconsistent regulatory treatment of tokenized real estate under the proposed rule. The SEC's rules do not provide consistent regulatory treatment for tokenized real estate, leading to confusion and potential regulatory arbitrage. As digital assets like cryptocurrency, built on blockchain technology, continue to transform the finance industry, it is crucial to have clear and consistent regulations to provide certainty for market participants and safeguard investor interests. I strongly urge the SEC to provide clearer guidance on how tokenized real estate should be treated and regulated under the proposed rule. Furthermore, I would like to address the SEC's approach to digital assets or cryptocurrencies. These emerging digital assets have the potential to revolutionize the financial industry, providing new opportunities for investors and businesses alike. However, regulatory uncertainties surrounding digital assets pose significant challenges. The proposed rule needs to address these challenges and provide a clear framework for the custody and safeguarding of digital assets. Additionally, while I understand the need for enhanced investor protections, I believe that the proposed rule may impose an excessive burden on investment advisers. The SEC's economic analysis acknowledges that compliance costs will vary depending on current custodial practices and existing controls. However, it is essential to ensure that the regulatory costs do not outweigh the benefits and create unnecessary hurdles for investment advisers, especially small entities. The SEC should carefully consider the economic impact of the proposed rule and seek a balance that enhances investor protections while minimizing the compliance burden. Moreover, I have concerns regarding the transition period and compliance dates. The proposed rule suggests a one-year transition period for advisers to comply with the new requirements. While I appreciate the need for a transition period to allow for adjustments, it is crucial to ensure that the compliance dates are reasonable and realistically achievable, especially for advisers managing different asset classes. In addition, the proposed compliance dates based on assets under management may disproportionately affect smaller firms. The SEC should carefully evaluate the feasibility of the proposed compliance dates and consider alternative approaches that do not disproportionately burden smaller firms. Finally, I would like to request further clarity on the proposed recordkeeping requirements and Form ADV changes. It is crucial to ensure that these requirements are practical and facilitate effective oversight without imposing excessive administrative burdens on investment advisers. Additionally, the SEC should provide guidance on what constitutes reasonable alternatives to the proposed rule. This will enable stakeholders to offer more targeted suggestions and potential overlooked benefits and costs. In conclusion, while I support the SEC's objective of enhancing investor protections in the safeguarding of advisory client assets, I believe that there are important issues and concerns that need to be addressed within the proposed rule. It is essential to provide consistent regulatory treatment for tokenized real estate and clarify the regulatory framework for digital assets. Moreover, the SEC should carefully consider the economic impact and compliance burden on investment advisers, especially smaller entities. I urge the SEC to carefully consider these points and make necessary revisions to ensure a fair and effective regulatory framework that balances investor protection with market viability. Thank you for your attention to these concerns. Sincerely, Rainer Winkler