Oct. 26, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposal "Safeguarding Advisory Client Assets." While I understand the intention behind this rule to enhance investor protections and address gaps in the custody rule, I have several concerns regarding the potential impacts of these proposed regulations. Firstly, I am deeply concerned about the burden that these rules would place on small businesses and startups, particularly those operating in the digital asset industry. The proposed rules seem to disproportionately target these entities, imposing compliance costs and regulatory requirements that could hinder innovation and growth in this rapidly evolving sector. It is crucial that the SEC takes into consideration the unique challenges faced by small businesses and startups and ensures that the regulations do not stifle their ability to compete and thrive in the market. Speaking of the digital asset industry, I must highlight the regulatory uncertainties surrounding this space. Digital assets, such as cryptocurrencies, have emerged as a transformative force in finance, leveraging blockchain technology to provide new opportunities for investment and financial inclusion. However, the proposed regulations do not adequately address the complexities and nuances of this rapidly evolving digital asset ecosystem. A comprehensive and thoughtful approach to regulating digital assets is crucial to ensure investor protection without stifling innovation in this growing industry. Moreover, the proposed rules need to provide clarity on the application of the custody rule to digital assets. Specific challenges surround demonstrating exclusive control over crypto assets, considering the nature of blockchain technology. It is essential for the SEC to work closely with industry stakeholders to develop guidelines and standards that strike a balance between safeguarding client assets and facilitating the growth of the digital asset market. In addition, the proposed amendments to the surprise examination requirement seem burdensome for investment advisers. While I recognize the importance of safeguarding client assets, a more tailored approach that considers the existing internal controls and risk management practices implemented by investment advisers should be explored. The rule should not unnecessarily burden advisers who already have robust systems and processes in place to ensure the protection of client assets. Furthermore, the increased reporting and recordkeeping requirements outlined in the proposed amendments to rule 204-2 place a significant administrative burden on investment advisers. As the SEC acknowledges the varying practices among advisers, it should consider whether the benefits of these additional requirements outweigh the costs associated with compliance. Striking the right balance between investor protections and administrative burdens is crucial to ensure that the regulatory framework is practical and effective. Lastly, I urge the SEC to provide more clarity on the transition period and compliance dates outlined in the proposal. The proposed one-year transition period may not be sufficient for investment advisers to fully comply with the new rules and implement necessary changes to their operations. Aligning the compliance dates with assets under management could be an effective approach that takes into consideration the varying sizes and complexities of investment advisory firms. In conclusion, I strongly encourage the SEC to address the concerns I have raised and carefully consider the potential impacts of the proposed rule on small businesses and startups, as well as the digital asset industry. By engaging in thoughtful dialogue and seeking input from industry stakeholders, the SEC can ensure that the final regulations strike the right balance between investor protections and promoting innovation and growth. Thank you for considering my comments on this important proposal. I look forward to the SEC's continued efforts in protecting investors while fostering an environment conducive to innovation and economic growth. Sincerely, Thomas