Oct. 28, 2023
Dear Sir/Madam, I am writing as a concerned U.S. citizen to offer my public comment on the proposed rule "Safeguarding Advisory Client Assets" from the Securities and Exchange Commission. While I commend the SEC's efforts to enhance investor protections and address gaps in the custody rule, I have several concerns regarding the proposed rule and its potential impact on the advisory industry and market integrity standards. One of my primary concerns is the burden that the proposed rule places on exchanges to comply with market integrity standards. As we know, blockchain transactions are decentralized and operate on various platforms and software. The current proposal, however, does not provide clear guidance on how exchanges should comply with these standards, considering the technical complexities involved. Without proper clarity and guidance, exchanges may struggle to ensure market integrity, which could undermine investor confidence. Furthermore, the proposed rule utilizes poorly defined terms, such as "platform," "software," and "ledger," which are susceptible to multiple interpretations. This lack of clarity can lead to confusion and uncertainty among investment advisers and other market participants. It is crucial for the SEC to provide precise definitions for these terms to ensure consistent and effective implementation of the rule. Additionally, the definition of terms like "wallet" and "validator" in the proposed rule does not align with their technical meaning. This deviation from their customary usage could create confusion and hinder the ability of investment advisers to comply accurately with the rule. It is essential for the SEC to review and revise these definitions to align with the industry's technical understanding. While I understand the SEC's intention to enhance investor protections and safeguard client assets, it is crucial to strike a balance between compliance requirements and the burden imposed on investment advisers. The proposed rule, with its current complexity and interpretation challenges, may create an excessive compliance burden for advisers. This burden could put small advisers at a significant disadvantage, potentially impeding their ability to provide effective advisory services. Furthermore, the economic analysis provided by the SEC acknowledges the potential increase in compliance costs for investment advisers. It is essential to consider the potential impact of these costs on advisory services, competition, and capital formation. Striking the right balance between investor protection and the sustainability of the advisory industry is necessary to foster a healthy and efficient market. In conclusion, I urge the SEC to address the concerns I have outlined in this public comment. Clearer guidance on compliance with market integrity standards, precise definitions of key terms, and a careful assessment of the compliance burden on investment advisers are all necessary for the successful implementation of the proposed rule. By doing so, we can ensure that investor protections are enhanced without unnecessarily burdening market participants. Thank you for considering my views. I appreciate the opportunity to provide input on this important matter. If you have any further questions or if there are other areas of concern that I can address, please feel free to reach out to me. Sincerely, A Concerned U.S. Citizen