Oct. 27, 2023
Dear Securities and Exchange Commission, My name is Sunny Ali, and I am writing to express my concerns regarding the proposed rule on Safeguarding Advisory Client Assets. While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I believe there are several areas where the proposed rule falls short and warrants reconsideration. Specifically, I am concerned about the insufficient consideration of global regulatory standards, particularly in relation to digital assets such as cryptocurrency. In today's rapidly evolving financial landscape, digital assets have emerged as a transformative force, utilizing blockchain technology to revolutionize the way we transact and store value. However, their regulatory treatment remains uncertain, which poses significant challenges for investment advisers and hinders cross-border transactions. It is essential that any regulations put forth by the SEC align with international best practices to prevent fragmentation in the market. The proposed rule does acknowledge the inclusion of digital assets and crypto within its scope, which is a step in the right direction. However, it falls short in providing adequate guidance on how investment advisers should safeguard these assets and demonstrate exclusive control. In order to effectively protect client assets, it is imperative that the SEC offers clear guidelines on custody practices, including digital assets, to ensure consistency and transparency. Furthermore, while the proposed rule recognizes the challenges in maintaining certain assets with a qualified custodian, I believe there should be further discussion on how advisers can meet the required safeguards when dealing with digital assets. Innovations in custody solutions, such as multi-signature wallets and smart contracts, present viable alternatives that should be considered in the rulemaking process. Moreover, the amendments to the surprise examination requirement seem to overlook the unique characteristics of digital assets. It is crucial that the SEC takes into account the differences in custodial practices and ensures that any examinations are tailored to the specific challenges associated with safeguarding digital assets. In addition to these concerns, it would be beneficial for the SEC to provide further guidance on recordkeeping requirements regarding digital assets. The decentralized nature and pseudonymous identities associated with cryptocurrency transactions present challenges in maintaining accurate records. Investment advisers need clear guidelines on how to fulfill their recordkeeping obligations in relation to digital assets. Lastly, I appreciate the SEC's consideration of the economic effects of the proposed rule. However, I urge the Commission to conduct a thorough assessment of the potential impact on the efficiency, competition, and capital formation in the digital asset industry. It is essential to strike a balance between investor protections and promoting innovation and growth in this evolving sector. In conclusion, I strongly urge the Securities and Exchange Commission to thoroughly address the concerns and challenges posed by digital assets and cryptocurrency in the proposed rule on Safeguarding Advisory Client Assets. By aligning with international regulatory standards and providing clear guidance on custody practices, recordkeeping requirements, and surprise examinations specifically tailored to digital assets, the SEC can foster an environment that promotes investor protection while encouraging innovation and growth in this transformative industry. Thank you for considering my comments. I look forward to the SEC's response and further engagement on this important matter. Sincerely, Sunny Ali