Oct. 28, 2023
Dear Securities and Exchange Commission I write this public comment in response to the Securities and Exchange Commission's (SEC) proposal on the "Safeguarding Advisory Client Assets." While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I have concerns regarding the potential negative impact on peer-to-peer exchanges and the treatment of digital assets or cryptocurrencies. Potential Negative Impact on Peer-to-Peer Exchanges The proposed rules may hinder the growth and development of peer-to-peer exchanges, limiting user autonomy and financial sovereignty. Peer-to-peer exchanges play a crucial role in the evolving digital asset landscape by enabling direct transactions between individuals, fostering financial inclusivity, and minimizing reliance on traditional intermediaries. The proposed rule's broad definition of assets and requirements for custody of client assets may inadvertently capture decentralized digital assets held by individuals on peer-to-peer exchanges. This could impose burdensome regulatory requirements on participants who may not have the same resources or capabilities as traditional custodians. Such an approach may stifle innovation and hinder the emergence of decentralized finance. The SEC should consider adopting a proportionate approach that recognizes the distinct characteristics of digital assets and allows for flexibility in regulatory frameworks. Instead of imposing a one-size-fits-all approach, the SEC should focus on developing guidelines and best practices to ensure investor protection without stifling technological advancements and market innovation. Digital Assets or Crypto Digital assets, such as cryptocurrencies, have proven their potential to transform the financial landscape, offering new opportunities for investment and financial inclusion. However, regulatory uncertainties surrounding digital assets pose challenges for both market participants and regulatory authorities. The proposed rule acknowledges the application of the custody rule to digital assets and specifically mentions crypto assets. While it is essential to safeguard client assets held in digital form, the rule should take into account the unique attributes of digital assets and their distributed ledger technology. One such attribute is the ability for individuals to maintain exclusive control and custody of their digital assets through private cryptographic keys. Applying traditional custodial requirements to digital assets may be challenging and could discourage investment advisers from embracing these emerging assets. It is crucial for the SEC to develop a comprehensive regulatory framework that addresses investor protection concerns without stifling market participation and innovation in the digital asset space. In doing so, the SEC should consider engaging with industry experts, market participants, and relevant stakeholders to develop guidance that promotes responsible and safe practices related to virtual custody of digital assets. This collaborative approach will enhance regulatory clarity, provide safeguards for investors, and stimulate the growth of the digital asset ecosystem. Conclusion As a concerned U.S. citizen, I appreciate the SEC's commitment to investor protection and capital market integrity. However, I urge the SEC to consider the potential negative impact on peer-to-peer exchanges and the unique characteristics of digital assets when finalizing the rules. By adopting a proportionate approach and offering regulatory clarity, the SEC can encourage responsible innovation in both traditional and emerging asset classes while ensuring the necessary safeguards are in place. I also take this opportunity to ask if there are any additional areas of concern that I can address in my public comment or any general questions that I should include in relation to the proposed rule. Thank you for your consideration of these important issues. I believe that with collaborative efforts, we can strike a balance between investor protection and fostering innovation in the financial industry. Sincerely, A Concerned U.S. Citizen