Oct. 28, 2023
Dear Securities and Exchange Commission (SEC), I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). As a concerned U.S. citizen, I believe it is crucial to ensure investor protections while avoiding regulatory burdens that may stifle innovation in the rapidly evolving digital asset industry. One particular area of concern relates to the burden imposed on exchanges to demonstrate exclusive control over client assets, especially in the context of digital assets or cryptocurrencies. These assets, built on blockchain technology, have the potential to transform finance and offer new investment opportunities. However, regulatory uncertainties often create challenges in navigating this rapidly changing landscape. The proposed rule places a significant burden on exchanges to prove exclusive control over client assets, which can be impractical for certain types of digital assets. Unlike traditional assets, digital assets are often stored in distributed networks or decentralized platforms, making it difficult to establish exclusive control. Imposing strict requirements for exclusive control may disproportionately affect digital asset exchanges and hinder their ability to provide innovative services to investors. It is important that regulators understand the unique characteristics of digital assets and adopt a balanced approach that promotes investor protection while fostering innovation. Instead of emphasizing exclusive control, regulators should focus on establishing robust cybersecurity measures, transparency, and best practices. This will allow the industry to develop proper safeguards while encouraging responsible custody practices for digital assets. Furthermore, the proposed rule should consider incorporating industry standards and self-regulatory organizations' best practices. These organizations have a deep understanding of the digital asset ecosystem and are well-positioned to provide guidance on effective custody and safeguarding measures. By leveraging the expertise of these organizations, the SEC can streamline and align its rules with existing industry practices, reducing regulatory burdens without compromising investor protection. Additionally, the SEC should consider the potential unintended consequences of implementing stringent custody requirements. Excessive regulatory burdens may discourage legitimate businesses from entering the digital asset market, leading to reduced competition and limiting investors' access to innovative investment opportunities. Balancing regulatory oversight with market efficiency is essential for promoting positive economic growth and fostering capital formation. In closing, I urge the SEC to reconsider the burden placed on exchanges to demonstrate exclusive control over client assets, particularly in the context of digital assets. It is crucial to acknowledge the unique characteristics of this emerging asset class and work collaboratively with industry participants to strike a balance between investor protection and regulatory burdens. By adopting a risk-based approach and leveraging existing industry standards, the SEC can ensure that the proposed rule effectively safeguards client assets while nurturing innovation and competition in the digital asset market. Thank you for considering my concerns, and I appreciate the opportunity to provide input on this important matter. Yours sincerely, A Concerned U.S. Citizen