Oct. 26, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I acknowledge the importance of enhancing investor protections and addressing gaps in the custody rule, I believe that certain aspects of the proposed rule may have unintended consequences that could negatively impact the competitiveness of U.S. companies compared to their international counterparts. One of my primary concerns is the potential confusion and inefficiency that may arise from the proposed regulations. The rule creates reporting requirements for a wide range of participants in decentralized finance (DeFi), including investment advisers and qualified custodians. However, the diverse nature of the DeFi ecosystem means that multiple, inconsistent reports may be generated for the same transaction, leading to confusion and delays in the reporting process. This could hamper the development of DeFi markets and hinder innovation within the industry. Furthermore, the proposed rule seems to assume that traditional custodial arrangements are always the most reliable and secure method of safeguarding client assets. While I understand the need to protect investors, it is important to recognize the advancements and potential benefits of decentralized technologies. The rule should strike a balance between enhancing investor protections and fostering innovation in the DeFi space. This can be achieved by developing alternative approaches to safeguarding client assets that are appropriate for the unique characteristics of digital assets and smart contracts. Additionally, I am concerned that the proposed regulations may create a competitive disadvantage for U.S. companies compared to their international counterparts. The complexities and reporting burdens imposed by the proposed rule could deter investment advisers and qualified custodians from participating in the DeFi space, thereby limiting the growth and development of U.S.-based DeFi projects. This could lead to capital flight and loss of market share to foreign jurisdictions that have embraced DeFi more openly and with less regulatory burden. I would like to emphasize the importance of striking the right balance between investor protections and the promotion of innovation and competitiveness. I believe that a thoughtful and nuanced approach is necessary when regulating the rapidly evolving DeFi industry. Rather than imposing one-size-fits-all regulations, the SEC should consider developing tailored rules and guidelines that account for the unique features of decentralized technologies, ensuring that they are appropriately regulated without stifling their growth potential. In conclusion, while I appreciate the SEC's efforts to enhance investor protections through the proposed rule on "Safeguarding Advisory Client Assets," I would urge the commission to carefully consider the potential negative impact on the competitiveness of U.S. companies in the global DeFi landscape. By striking the right balance between safeguards and innovation, the SEC can help foster a thriving and competitive DeFi ecosystem that benefits investors and the U.S. economy as a whole. Thank you for considering my comments and for providing the opportunity to express my concerns regarding this important rulemaking proposal. Sincerely, Andrew Kraics