Oct. 25, 2023
To whom it may concern. I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). While I acknowledge the SEC's aim to enhance investor protections and address gaps in the custody rule, I have several concerns regarding the proposed rule that I believe warrant further consideration and potential revision. Firstly, I am concerned about the potential overreach of the SEC's regulatory authority. It is important to ensure that regulatory agencies do not encroach on areas that should be regulated by other appropriate authorities. With regards to digital assets or cryptocurrencies, for example, the SEC's proposed rule might exceed its regulatory authority, potentially stifling the transformative potential of these emerging technologies. It is crucial to strike a balance between protecting investors and fostering innovation in this rapidly evolving space. Additionally, I am concerned about the specific implications of the proposed rule on digital assets or crypto. These digital assets have emerged as a significant force in the financial industry, built upon blockchain technology. However, the regulatory uncertainties surrounding digital assets can create challenges for investment advisers seeking to provide innovative solutions to their clients. It is important for the SEC to carefully consider these complexities and tailor the proposed rule to address the specific needs and characteristics of digital assets. Furthermore, I believe that the proposed rule should make an effort to address potential unintended consequences. While the rule aims to enhance investor protections, it is crucial to ensure that it does not impose undue burdens on investment advisers and lead to unintentional complexity and costs. The SEC should strike a delicate balance between enhanced regulatory oversight and burdensome compliance requirements, particularly for small entities and advisers. Moreover, I encourage the SEC to consider potential alternatives to the proposed rule that could achieve the objective of investor protections without overly burdening investment advisers. It is important to foster an environment that encourages compliance and facilitates oversight, without impeding efficient capital formation and competition within the advisory services industry. By engaging with stakeholders to identify reasonable alternatives, the SEC can ensure that its regulatory approach is both effective and efficient. In addition to addressing these concerns, I also appreciate the SEC's consideration of the economic analysis of the proposed rule. The quantified and qualitative assessments of the economic effects provide valuable insights into the potential benefits and costs. I would like to emphasize the importance of transparency in the rulemaking process, particularly when estimating compliance costs for investment advisers. An accurate understanding of these costs will help inform the final rule and foster a regulatory environment that incentivizes compliance and supports economic growth. Lastly, I would like to inquire about the SEC's handling of staff no-action letters and statements regarding the custody rule. As interested parties, I believe we should have the opportunity to suggest the withdrawal of certain letters and statements if they are inconsistent with the goals of the proposed rule. This would promote consistency and integrity in regulatory guidance and ensure that the final rule is based on a comprehensive and harmonized framework. In conclusion, I urge the SEC to carefully consider these concerns and strive to strike a balance between enhancing investor protections and avoiding unnecessary regulatory burdens. The proposed rule should be tailored to address the unique challenges and opportunities presented by digital assets, while fostering a regulatory environment that encourages compliance, competition, and capital formation. I appreciate the opportunity to provide this public comment and look forward to the SEC's continued commitment to robust and effective regulation. Sincerely, Jeffrey Kahn