Oct. 25, 2023
Dear Securities and Exchange Commission, I am writing to provide my feedback and express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets". While I appreciate the SEC's commitment to enhancing investor protections and addressing gaps in the custody rule, I believe there are certain areas where the proposed rule falls short. In particular, I would like to address the inadequate consideration of the unique properties of cryptocurrency and digital assets. It is crucial for the SEC to acknowledge and fully understand the decentralized nature and technological complexities of cryptocurrencies. These digital assets, built on blockchain technology, are rapidly transforming the financial landscape. However, the current regulatory framework does not adequately account for the unique characteristics and challenges posed by these assets. As a result, the proposed regulatory requirements for crypto assets are impractical and may hinder the advancement of this innovative sector. The proposed rule expands the coverage to include a broader range of investments held in a client's account. While this may be beneficial for traditional assets, it fails to consider the intricacies involved in safeguarding cryptocurrencies. The decentralized nature of cryptocurrencies makes it challenging to apply the same custodial requirements as traditional assets. Imposing stringent custody requirements on these assets could impede their growth and limit access to potentially lucrative investment opportunities for investors. Moreover, the rule's emphasis on demonstrating exclusive control over crypto assets overlooks the unique characteristics of blockchain technology. The distributed and transparent nature of blockchains ensures that transactions and ownership are recorded immutably and can be verified independently by network participants. The current proposal fails to recognize this inherent feature and instead imposes burdensome requirements on demonstrating control. Furthermore, the proposed amendments to the surprise examination requirement and investment adviser recordkeeping rule do not adequately address the intricacies of digital assets. The decentralized nature of cryptocurrencies makes it challenging for traditional accountants to effectively conduct surprise examinations and maintain records. It is essential for the SEC to engage with industry experts and stakeholders to develop comprehensive and practical guidelines that consider the unique properties of digital assets. While I understand the need to protect investors, it is crucial for the SEC to strike a balance between investor protection and innovation. To achieve this, the SEC should work collaboratively with industry participants, associations, and experts to develop a regulatory framework that comprehensively addresses the challenges posed by cryptocurrencies. This collaboration would ensure that investors are adequately protected while preserving the transformative potential of digital assets. I appreciate the SEC's willingness to consider public comments on this important proposal. I urge the Commission to revise the rule and develop a framework that takes into account the unique properties of cryptocurrencies and digital assets. By doing so, we can foster innovation, protect investors, and ensure the long-term sustainability of the financial services industry. Thank you for considering my concerns and feedback. Sincerely, Jeffrey Kahn