Oct. 28, 2023
Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Subject: Public Comment on Proposal "Safeguarding Advisory Client Assets" (File No. S7-31-20) Dear Sir/Madam, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" (File No. S7-31-20), which aims to enhance investor protections and address gaps in the custody rule for investment advisers. While I commend the Securities and Exchange Commission (SEC) for prioritizing the safeguarding of client assets, I would like to raise some concerns and offer nuanced points against certain rule proposals. One area of concern pertains to the lack of clarity regarding the definition of digital assets. The proposal fails to provide clear guidance on what constitutes a digital asset, which can lead to confusion and potential misinterpretation. In today's rapidly evolving financial landscape, digital assets, particularly cryptocurrency, have emerged as a significant investment class. As such, it is crucial to establish a precise definition of digital assets to ensure proper safeguarding measures are implemented. Without clear guidance, investment advisers may struggle to adequately protect client assets in this unique and evolving asset class. Furthermore, the proposal recognizes the challenges associated with applying the custodial rule to crypto assets. While the increasing popularity and value of digital assets present regulatory complexities, it is essential to strike a balance between investor protection and fostering innovation. The SEC should aim to provide clear guidelines for investment advisers on the custody and safeguarding of digital assets, taking into account the unique qualities and risks associated with this asset class. This clarity will greatly assist advisers in complying with the rule while ensuring the safety of client assets. Additionally, the proposed amendments regarding the surprise examination requirement raise concerns about the burden on investment advisers. While surprise examinations play a vital role in safeguarding client assets, it is important to carefully consider the costs and practicalities associated with implementing such examinations. By seeking a reasonable balance between the need for asset protection and the practical implications for advisers, the SEC can ensure effective oversight without unduly burdening industry participants. Furthermore, I would like to emphasize the importance of considering the potential impact on small investment advisers and their ability to comply with the proposed rule. While it is commendable that most small advisers registered with state authorities will not be significantly affected, awareness of the potential challenges for the 321 SEC-registered advisers with custody of client assets is essential. The SEC should thoroughly evaluate the impact on these small advisers to avoid exacerbating any existing compliance burdens. Lastly, I appreciate the SEC's efforts to outline the economic effects of the proposed rule amendments. By quantifying the benefits and costs associated with the safeguarding of client assets, the SEC demonstrates a commitment to informed decision-making. I encourage the SEC to continue actively seeking and considering public input on economic analysis and the potential overlooked benefits and costs. This collaborative approach will result in more effective and balanced regulation. In conclusion, I urge the SEC to address the aforementioned concerns and provide clear and comprehensive guidance on the safeguarding of digital assets. It is crucial to strike a careful balance between investor protection and innovation in an increasingly digital financial world. By doing so, the proposed rule can effectively enhance investor protections without impeding the growth of crucial emerging asset classes. Thank you for considering my comments, and I appreciate the SEC's dedication to safeguarding advisory client assets. Regards,