Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets." While I acknowledge the SEC's efforts to enhance investor protections and address gaps in the custody rule, I have several concerns and issues that I believe need to be addressed. Specifically, I would like to bring attention to the lack of industry expertise in drafting the proposal, particularly in relation to digital assets and cryptocurrency. The SEC's proposed rule includes amendments that aim to address the application of the rule to crypto assets. However, it is evident that the SEC lacks sufficient expertise in the digital asset industry and may not fully understand its unique characteristics. Digital assets, such as cryptocurrency, are built on blockchain technology and are transforming the traditional financial landscape. However, regulatory uncertainties and inconsistent treatment by different regulatory bodies pose significant challenges to the industry's growth and development. The lack of expertise is most apparent in the proposal's discussion on demonstrating exclusive control over digital assets. The proposal fails to recognize the decentralized nature of blockchain technology, which differs significantly from traditional custodial arrangements. It is crucial for the SEC to engage with industry experts and stakeholders to gain a deeper understanding of digital asset custody and ensure that any new regulations are tailored to the unique characteristics and requirements of the industry. Furthermore, the SEC's proposed rule may inadvertently stifle innovation in the digital asset industry. While investor protections should be paramount, it is crucial to strike a balance that encourages innovation, promotes competition, and fosters capital formation. The proposed rule's broad definitions and requirements may impose significant compliance costs on digital asset custodians, potentially discouraging their participation in the market and impeding the growth of this emerging industry. I urge the SEC to conduct a thorough consultation process with industry experts, stakeholders, and market participants to ensure that any regulations relating to digital assets and cryptocurrencies are well-informed, pragmatic, and take into account the rapid pace of technological advancements. Additionally, the proposal should provide clear guidance on best practices for custodial arrangements involving digital assets, including considerations for decentralized custody mechanisms. In conclusion, I appreciate the SEC's commitment to enhancing investor protections through the proposed rule. However, I believe it is crucial for the SEC to involve industry experts and stakeholders to ensure that the regulations are effective, balanced, and forward-thinking, particularly in the rapidly evolving digital asset industry. By doing so, the SEC can foster an environment that supports innovation, competition, and investor trust. Thank you for considering my concerns and recommendations.