Oct. 25, 2023
To whom it may concern at the Securities and Exchange Commission, I am writing in response to 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 concerns about certain aspects of the proposal that I believe require further consideration. Specifically, I would like to discuss the scope of the rule, the treatment of digital assets or cryptocurrencies, and potential negative impact on the competitiveness of US companies. Firstly, I have reservations about the expansion of the rule's coverage to include a broader range of investments held in a client's account. While it is important to protect client assets, this expansion may unintentionally burden investment advisers with additional compliance costs and administrative complexities. The SEC should carefully consider whether the proposed inclusion of discretionary authority in custody is justified, and whether exceptions for specific situations adequately address the concerns raised. Furthermore, the treatment of digital assets or cryptocurrencies requires careful consideration. These assets, built on blockchain technology, are transforming the financial landscape. However, the regulatory uncertainties surrounding digital assets pose challenges for investment advisers and their ability to effectively safeguard client assets. The proposed rule should provide clearer guidelines and considerations for investment advisers dealing with digital assets, such as how to demonstrate exclusive control and address potential security concerns. In addition, I am concerned that the proposed rule may inadvertently put US companies at a competitive disadvantage compared to their international counterparts. The increased compliance requirements and potentially higher costs for qualified custodians in the US may lead to a loss of market share and capital flight to jurisdictions with less stringent regulations. A balanced approach that protects client assets while maintaining the competitiveness of US companies should be pursued. As part of this concern, the SEC should carefully analyze the potential negative impact on the efficiency and competitiveness of US companies, particularly in the global market. It would be prudent to conduct a thorough economic analysis that takes into account the varied practices among investment advisers and the potential consequences of the proposed rule on US companies' ability to compete globally. The SEC should strive to strike a balance between investor protections and maintaining the vibrancy of the US market. Furthermore, I urge the SEC to engage in dialogue with other regulatory bodies, both domestically and internationally, to harmonize rules and regulations concerning digital assets. A coordinated approach will help mitigate the regulatory uncertainties faced by investment advisers and promote a level playing field for all market participants. In conclusion, while I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I believe there are areas of the proposed rule that require further consideration. The scope of the rule, the treatment of digital assets, and potential negative impact on the competitiveness of US companies are pressing concerns that need to be addressed. I encourage the SEC to carefully evaluate these aspects and engage with the industry stakeholders to develop rules that strike the right balance between investor protection and maintaining the competitiveness of US companies. Thank you for considering my comments on this important matter. Sincerely, Jeffrey Kahn