Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing this public comment to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I appreciate the SEC's intention to enhance investor protections and address gaps in the custody rule, I believe that certain aspects of the proposed rule exhibit overreach of regulatory authority. It is crucial that the SEC respects the boundaries of its jurisdiction and does not encroach on areas that should be regulated by other agencies. Specifically, I am concerned about the proposed rule's treatment of digital assets or cryptocurrencies. Digital assets, such as cryptocurrencies, are fundamentally changing the financial landscape and warrant a comprehensive regulatory framework. However, the SEC's current approach to regulating digital assets appears to be uncertain and lacks clarity. As acknowledged in the proposed rule, applying custody requirements to digital assets presents unique challenges. The SEC must approach regulation in this area with caution, considering the rapidly evolving nature of digital assets and blockchain technology. One of the challenges mentioned in the proposed rule is demonstrating the exclusive control requirement for digital assets. While it is crucial to ensure client asset protection, the proposed rule needs to recognize that digital assets, by their very nature, are designed to be decentralized and may not fit neatly into the traditional custody framework. Regulating digital assets should require a nuanced approach that strikes a balance between safeguarding investor interests and fostering innovation. Additionally, I would like to emphasize the need for regulatory coordination in the realm of digital assets. The SEC should actively collaborate with other relevant agencies, such as the Commodity Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN), to ensure a cohesive and comprehensive regulatory framework that does not stifle innovation or hinder market development. The proposed rule should consider potential alternatives or additional guidance specifically tailored to digital assets to provide clarity and encourage responsible participation by investment advisers in this growing market. It is essential to strike a delicate balance between protecting investors and fostering innovation to facilitate capital formation. Furthermore, I believe it is necessary to evaluate the potential economic impact that the proposed rule will have on the advisory industry. The SEC's consideration of the costs and benefits associated with the rule amendments is commendable. However, it is crucial to ensure that the compliance costs for investment advisers, particularly small entities, are reasonable and proportionate. In conclusion, I urge the SEC to carefully consider the potential overreach of regulatory authority in its proposed rule on "Safeguarding Advisory Client Assets." I recommend a cautious and coordinated approach to regulating digital assets, ensuring that the regulatory framework is responsive to the unique challenges and opportunities presented by these emerging technologies. It is essential to strike the right balance between investor protection, innovation, and fostering a dynamic and competitive economy. Thank you for your attention to these concerns. Sincerely, Sean Quijano