Oct. 28, 2023
Lexi Nelson Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: Safeguarding Advisory Client Assets - File Number [Insert File Number] Dear Securities and Exchange Commission, I am writing to provide my input 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 have some concerns and issues that I believe need further consideration. Firstly, I would like to express my concern regarding the lack of clarity on compliance requirements for non-custodial services. The proposal fails to provide clear guidance on how investment advisers can effectively comply with the rule when providing non-custodial services. This creates uncertainty for market participants and may negatively impact the growth and innovation of these services. It is essential that the SEC provides more explicit guidance and ensures that compliance requirements are appropriately tailored to different types of services in order to promote a fair and competitive market. Additionally, I am deeply troubled by the poorly defined terms used in the proposed regulations. The incorporation of undefined terms, such as "platform", "software", and "ledger" leaves room for multiple interpretations. This ambiguity can lead to confusion for both investment advisers and investors, potentially undermining the intended protections of the rule. Furthermore, the definitions provided for terms like "wallet" and "validator" do not accurately reflect their technical meaning, further adding to the confusion. It is imperative that the SEC clarifies and solidifies the definitions of these terms to ensure consistency and avoid unnecessary complexities. Moreover, I encourage the SEC to consider the potential unintended consequences of the proposed rule amendments, especially in relation to the economic impact on investment advisers and qualified custodians. While the rule aims to enhance investor protections, it is essential to strike a balance with compliance costs. The magnitude of these costs will vary depending on current custodial practices and existing controls, and it is crucial to ensure that the burden does not disproportionately affect smaller market participants or hinder their ability to provide valuable services to clients. The SEC should conduct a thorough analysis of the economic effects, including expanded costs for compliance and its potential impact on market competition and capital formation. In conclusion, I urge the SEC to address the concerns raised above and to provide further clarity on compliance requirements for non-custodial services. I also strongly recommend revisiting and refining the definitions of terms to mitigate confusion and ensure consistent interpretation. Finally, I emphasize the importance of conducting a comprehensive economic analysis, considering the potential impact on smaller market participants and carefully balancing investor protections with compliance costs. Thank you for considering my comments on this crucial matter. I trust that the SEC will carefully assess all public comments to ensure that the final rule strikes an appropriate balance between investor safeguarding and market efficiency. I look forward to the SEC's response and further engagement on this important issue. Sincerely, Lexi Nelson