Oct. 28, 2023
Dear SEC, I am writing as a concerned U.S. citizen to express my thoughts and concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I appreciate the Securities and Exchange Commission's (SEC) efforts to enhance investor protections and address gaps in the custody rule, I would like to highlight a few issues that require further attention and clarification. First and foremost, I would like to address the inconsistent regulatory treatment of decentralized exchanges. As the proposed rules stand, there is a lack of consistent regulatory treatment for decentralized exchanges, which creates uncertainty and the potential for regulatory arbitrage. Given the rapid growth and transformative nature of digital assets, such as cryptocurrencies built on blockchain technology, it is crucial that regulatory frameworks keep pace with innovation. Digital assets have the potential to reshape the financial landscape by providing greater efficiency, transparency, and accessibility. However, in order to fully realize their benefits, clear and consistent regulations are necessary. I urge the SEC to carefully consider the unique characteristics of decentralized exchanges and develop a framework that addresses potential risks while fostering innovation and competition in this space. By doing so, we can build a regulatory environment that strikes a balance between safeguarding investor interests and encouraging technological advancements. Furthermore, I believe that additional clarity is needed in addressing the challenges of demonstrating exclusive control over client assets, particularly in the context of crypto assets. The proposed rule acknowledges these challenges but lacks specific guidance on how to effectively demonstrate exclusive control over digital assets. Given the unique nature of digital asset custody, it is crucial to establish clear and practical guidelines to ensure the effective safeguarding of client assets. In addition, the proposed rule's amendments to the surprise examination requirement should be carefully evaluated to strike the right balance between protecting client assets and reducing compliance burdens. While surprise examinations are important for mitigating the risk of asset loss, overly burdensome requirements could hinder the ability of investment advisers, especially smaller ones, to effectively manage clients' assets. I urge the SEC to consider more tailored approaches that take into account the size and resources of investment advisers, without compromising investor protections. Moreover, the proposed amendments to the investment adviser recordkeeping rule and changes to Form ADV, while important for improving oversight and transparency, require significant compliance efforts and costs for investment advisers. It is crucial that the SEC carefully assess these costs and consider the potential impact on smaller advisers, who may face disproportionate burdens compared to larger market participants. Encouraging innovation and competition in the advisory industry should be a key objective, and unnecessary regulatory burdens could inadvertently stifle these goals. Lastly, I appreciate the SEC's consideration of economic impacts in its analysis. However, I urge the SEC to conduct a comprehensive and balanced assessment, taking into account the potential benefits and costs of the proposed rule on efficiency, competition, and capital formation. It is important to strike a careful balance that maximizes investor protection while minimizing unnecessary burdens on market participants. In conclusion, I strongly urge the SEC to address the issues of inconsistent regulatory treatment of decentralized exchanges and provide clearer guidance on demonstrating exclusive control over digital assets. Additionally, I recommend that the SEC carefully evaluate the compliance requirements and costs associated with the proposed amendments, particularly for smaller investment advisers. A balanced approach to regulating digital assets and safeguarding client assets is necessary to ensure the long-term health and growth of the advisory industry. Thank you for considering my comments. I appreciate the opportunity to provide input on these important matters. Should there be any further areas of concern or questions regarding the proposal, please do not hesitate to contact me. Sincerely, A Concerned U.S. Citizen