Oct. 26, 2023
Dear Securities and Exchange Commission, I am writing to submit a public comment on the proposed rule "Safeguarding Advisory Client Assets," which aims to enhance investor protections and address gaps in the custody rule for investment advisers. While I appreciate the Commission's efforts to strengthen safeguards for client assets, I have concerns about the lack of clarity surrounding token custody by investment advisers. One of the key issues with the proposed regulations is the poorly defined terms used throughout the document. Terms such as "platform," "software," and "ledger" are crucial in understanding the scope and applicability of the rule. However, the proposal fails to provide clear and precise definitions for these terms, opening the door to multiple interpretations. Without a clear definition, investment advisers may struggle to determine whether certain assets fall within the jurisdiction of the rule and how to appropriately safeguard them. Additionally, the definition of terms such as "wallet" and "validator" within the proposal does not align with their technical meaning commonly used within the cryptocurrency industry. The misalignment between the proposal and industry standards further compounds the confusion surrounding token custody. Clear definitions are vital to ensure consistency and effective enforcement of the proposed rule. Furthermore, I believe the proposal could benefit from a more nuanced approach to token custody by investment advisers. Cryptocurrencies and tokenized assets present unique challenges in terms of custody, and the proposed rule should address these challenges specifically. By overlooking the nuances of token custody, the current proposal fails to provide adequate guidance to investment advisers operating in this rapidly evolving field. To address these concerns, I recommend the Commission engage in meaningful dialogue with industry experts and stakeholders to refine the definitions and provide clearer guidelines on token custody by investment advisers. Engaging with stakeholders will provide valuable insights and help strike a balance between investor protection and innovation while addressing the challenges associated with token custody. In conclusion, while the proposed rule "Safeguarding Advisory Client Assets" is a step in the right direction, I urge the Commission to consider the concerns raised regarding token custody by investment advisers. Providing clearer guidelines and engaging with industry experts will foster a better understanding of these custody practices and enable investment advisers to effectively safeguard client assets while navigating the complexities of the digital asset landscape. Thank you for considering my comments. I appreciate the opportunity to provide input on this important matter. Sincerely, Patrick Johnson