Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets", outlined in your document on regulations.gov. While I appreciate the importance of enhancing investor protections and addressing gaps in the custody rule, I have numerous concerns and reservations regarding the scope and implementation of the proposed amendments. First and foremost, my primary concern lies in the lack of industry expertise evident in the drafting of this proposal. The current provisions fail to adequately address the unique characteristics of digital assets, particularly cryptocurrencies. As the cryptocurrency market continues to grow and attract investments, it is crucial that regulatory bodies like the SEC possess a thorough understanding of these emerging technologies. The proposed rule, unfortunately, does not reflect sufficient insight into the complexities of digital assets and the challenges they present to traditional custodial practices. Digital assets, built on blockchain technology, are transforming the financial landscape and have the potential to revolutionize investment management. Yet, regulatory uncertainties surrounding cryptocurrencies pose significant challenges for both investors and investment advisers. While the proposed rule attempts to address the inclusion of crypto assets, it falls short in providing comprehensive guidelines. The SEC must take into account the unique considerations associated with digital assets to foster innovation while ensuring investor protection. Furthermore, the proposed rule's requirement to demonstrate exclusive control over crypto assets is particularly problematic. Cryptocurrencies are often stored on decentralized platforms, such as blockchain networks, where control is shared among multiple participants. Mandating exclusive control would be impractical and potentially hinder the adoption of these transformative technologies. The SEC should work towards striking a balance between safeguarding client assets and accommodating the unique nature of digital assets. In addition to the challenges posed by digital assets, it is crucial to highlight the potential negative impact of the proposed rule on the investment advisory industry as a whole. The amendments outlined in the proposal impose significant compliance costs on investment advisers, particularly with regards to recordkeeping and reporting requirements. While investor protection is of paramount importance, excessive regulatory burdens may impede the ability of advisers, particularly small entities, to efficiently and effectively manage client assets. It is crucial that the SEC considers the integrity and competitiveness of the advisory industry when implementing new rules. Striking a balance between investor protection and regulatory efficiency is vital to ensure the continued growth and development of the industry. I encourage the SEC to carefully assess the potential economic effects, particularly on small advisers, and consider reasonable alternatives to mitigate the compliance costs associated with the proposed rule. In conclusion, I urge the SEC to revisit the proposed amendments to the rule "Safeguarding Advisory Client Assets" with a greater emphasis on addressing the unique challenges posed by digital assets. The inclusion of cryptocurrencies requires a thoughtful and nuanced approach that strikes the right balance between investor protection and facilitating innovation. Additionally, careful consideration must be given to the potential economic impact on investment advisers, particularly small entities, to ensure a fair and competitive regulatory environment. Thank you for considering my concerns and suggestions. I trust that you will take these viewpoints into account as you strive to enhance investor protections and foster a thriving investment advisory industry. Sincerely, Milos