Oct. 28, 2023
Dear Securities and Exchange Commission, I, A Concerned U.S. Citizen, am writing to express my concerns regarding the proposed rule titled "Safeguarding Advisory Client Assets" (the "Proposal"), as published by the Securities and Exchange Commission (the "SEC"), in order to enhance investor protections and address gaps in the custody rule. While I appreciate the SEC's efforts to safeguard client assets and address the unique challenges posed by emerging digital assets like cryptocurrency, I have certain concerns about the burdens placed on exchanges to conduct due diligence on digital asset issuers. The Proposal's focus on digital assets is particularly relevant given the transformative potential of blockchain technology in the financial industry. These innovative digital assets have challenged existing regulatory frameworks, necessitating a careful examination of the risks and benefits associated with their inclusion within the proposed rule. I believe that a nuanced and context-specific approach is necessary to strike the right balance between investor protection and fostering innovation. One of my primary concerns pertains to the burden that the Proposal places on exchanges to conduct due diligence on digital asset issuers. While due diligence is crucial to protect investors and maintain market integrity, the dynamic nature of digital assets, coupled with their decentralized and borderless nature, may present challenges in implementing exhaustive due diligence procedures. It is essential to consider the practical limitations that exchanges may face in evaluating the numerous digital asset issuers, especially those operating in less regulated jurisdictions. Imposing burdensome due diligence requirements on exchanges could push these assets out of the regulated market, depriving investors of potential opportunities. Furthermore, regulatory uncertainties surrounding digital assets have already hindered their mainstream adoption. Introducing additional burdens on exchanges will not only impede the functioning of these marketplaces but may also stifle innovation and create barriers to entry for potential issuers. It is crucial for the SEC to foster an environment that encourages responsible innovation in the digital asset space while safeguarding investors' interests. In order to strike an appropriate balance, I recommend that the SEC provide further guidance on the due diligence standards for exchanges regarding digital asset issuers. This guidance should consider the unique characteristics and risks associated with digital assets, while avoiding undue burdens on exchanges that may stifle competition and innovation. The SEC should encourage and incentivize industry-driven best practices, information sharing, and collaboration among market participants to collectively enhance the due diligence procedures for digital asset issuers. Moreover, the SEC should explore partnerships with international regulators to develop harmonized standards for due diligence on digital asset issuers. Consistent standards across jurisdictions will not only promote regulatory certainty but also mitigate the risk of regulatory arbitrage or uneven levels of investor protection. In conclusion, while the Proposal's intent to safeguard investor assets and address the challenges associated with digital assets is commendable, the burden imposed on exchanges to conduct due diligence on digital asset issuers is an area of concern. It is essential that the SEC strikes the correct balance between protecting investors and fostering innovation within the digital asset space. The SEC should consider the practical challenges faced by exchanges in conducting comprehensive due diligence, provide clarifications, and seek collaborative solutions through industry-wide coordination and international partnerships. Thank you for considering my comments on this important matter. I strongly urge the SEC to take these concerns into account while finalizing the rule. I trust that, with your expertise and commitment to investor protection, you will navigate the regulatory landscape in a manner that supports innovation while safeguarding the interests of investors. Sincerely, A Concerned U.S. Citizen