Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing to provide my concerns regarding the proposed rule "Safeguarding Advisory Client Assets". As a concerned citizen, I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule. However, I would like to express my reservations and offer suggestions for improving the proposed rule. Firstly, I would like to address the scope of the rule. While it is commendable that the proposed rule expands the coverage to include a broader range of investments held in a client's account, it is essential to consider the unique challenges presented by digital assets or cryptocurrency. Digital assets, built on blockchain technology, are quickly transforming the financial landscape. However, the regulatory uncertainties surrounding digital assets pose significant challenges for investment advisers and qualified custodians. It is crucial for the SEC to ensure that the proposed rule appropriately addresses the specific concerns and complexities associated with digital assets. Furthermore, I am concerned about the burden the proposed rule places on exchanges in complying with market abuse and manipulation detection. Given the complexity of blockchain-based markets, it may be challenging for exchanges to adequately monitor and detect market abuse and manipulation. It is essential for the SEC to take into consideration the technological limitations and potential costs imposed on exchanges by this requirement. Striking a balance between safeguarding client assets and facilitating innovation in the burgeoning digital asset industry is necessary for the rule to be effective and fair. Additionally, the economic analysis provided by the SEC acknowledges the benefits of the proposed rule in enhancing investor protections and addressing conflicts of interest. However, it is necessary to consider the potential costs imposed on investment advisers and qualified custodians. The compliance costs may vary considerably depending on the current custodial practices and existing controls of each adviser. The SEC should strive to minimize unnecessary burdens and provide clear guidelines to ensure that compliance costs are reasonable and proportionate to the enhanced investor protections provided. Moreover, transparency and oversight are crucial in fostering investor confidence. The proposed amendments to the investment adviser recordkeeping rule and changes to Form ADV offer opportunities to improve transparency and regulatory oversight. However, it is crucial for the SEC to balance the need for information with the potential administrative burden placed on investment advisers. The SEC should thoroughly evaluate the necessity and proportionality of the information required to strike the right balance and avoid unduly burdensome reporting requirements. Lastly, I would like to address the transition period and compliance dates proposed by the SEC. A one-year transition period for advisers to comply with the new rule seems reasonable considering the potential adjustments and implementation challenges they may face. However, it is vital for the SEC to provide clarity and guidance on compliance dates based on the assets under management. A flexible and practical approach to implementation is crucial to ensure a smooth transition and avoid unnecessary compliance burdens. In conclusion, while I appreciate the SEC's efforts to safeguard advisory client assets through this proposed rule, I urge the Commission to address the concerns outlined above. Digital assets present unique challenges that require careful consideration within the scope of the rule. Additionally, striking a balance between safeguarding client assets and enabling innovation in the digital asset industry is essential. The SEC should also ensure that compliance costs are proportionate and reasonable. Transparency, oversight, and a flexible transition period are crucial elements to ensure the effectiveness and fairness of the rule. Thank you for considering my concerns and suggestions. I trust that you will thoroughly evaluate the public comments to ensure that the final rule is comprehensive, fair, and in the best interest of investors. Sincerely, A Concerned U.S. Citizen