Oct. 28, 2023
Dear SEC, I am writing as a concerned U.S. citizen regarding the proposal "Safeguarding Advisory Client Assets". While I appreciate the effort to enhance investor protections and address gaps in the custody rule, I have several concerns and issues that I believe need to be addressed. First and foremost, I am concerned about the lack of clarity on token custody by investment advisers. In this digital age, digital assets like cryptocurrencies are becoming increasingly prevalent and important in the financial industry. However, the proposal does not provide clear guidance on how investment advisers should handle the custody of these digital assets. This creates uncertainty and potential compliance difficulties for investment advisers and puts investor assets at risk. The cryptocurrency market is rapidly evolving, and without definitive rules and guidance, investment advisers may struggle to navigate the complexities of digital asset custody. It is essential that the SEC provides clarity on the treatment of digital assets and establishes appropriate safeguarding measures for investment advisers to protect client assets in this new and innovative space. Furthermore, the proposal's economic analysis recognizes the importance of investor protection but does not adequately address the potential transformative impact of digital assets. Cryptocurrencies have the potential to revolutionize financial markets and promote technological innovation. However, regulatory uncertainties and burdensome compliance requirements can stifle this transformative potential and limit the benefits to investors and the economy as a whole. To address these concerns, the SEC should collaborate with industry experts, stakeholders, and market participants to develop comprehensive and tailored guidelines for the custody of digital assets. It is crucial to strike a balance between investor protection and fostering innovation and growth in this rapidly evolving market. In addition to addressing the lack of clarity on token custody, the SEC should also consider the following points for the proposed rule: Define digital assets: Given the evolving nature of digital assets, a clear and comprehensive definition is needed to ensure consistent interpretation and application of the rule. This will provide clarity for investment advisers and promote transparency in the market. Recognize the unique features of blockchain technology: Blockchain technology, on which many digital assets are built, offers inherent security and transparency. The SEC should leverage these features in the development of custody requirements, allowing investment advisers to utilize the benefits of blockchain technology while ensuring sufficient protection of client assets. Encourage innovation and competition: The proposed rule should not inadvertently stifle innovation and competition in the digital asset space. Regulatory requirements should be flexible enough to accommodate technological advancements and encourage responsible innovation, while still safeguarding client assets. Provide adequate transition periods: Given the rapidly evolving nature of digital assets, investment advisers may require sufficient time to adapt to any new requirements. The SEC should consider providing extended transition periods to allow investment advisers to develop appropriate custody solutions for digital assets. International harmonization: The SEC should coordinate efforts with international regulators to establish global standards for digital asset custody. Harmonization will help prevent regulatory arbitrage and ensure consistency in investor protection across jurisdictions. In conclusion, the proposal "Safeguarding Advisory Client Assets" is a crucial step towards bolstering investor protections. However, it falls short in providing clear guidance on digital asset custody, undermining the potential benefits of cryptocurrencies and other digital assets. I urge the SEC to address these concerns and work towards establishing a comprehensive framework that protects investors while fostering innovation and competition in the digital asset space. Thank you for considering my comments. I trust that the SEC will carefully evaluate these concerns and take them into account in the final rulemaking process. Sincerely, A Concerned U.S. Citizen