Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). While I appreciate the agency's efforts to enhance investor protections and address gaps in the custody rule, I have several concerns regarding the proposed rule and its potential impact on the safeguarding of digital assets or cryptocurrencies. Firstly, it is evident that the SEC's proposed rules on safeguarding client assets do not demonstrate sufficient coordination with other regulatory agencies. The rapid advancement of digital assets, particularly cryptocurrencies built on blockchain technology, has transformed the financial landscape. However, the regulatory uncertainties surrounding digital assets pose challenges for both investors and market participants. Without comprehensive and coordinated regulation, there is a risk of fragmented and conflicting rules that hinder market growth and impede investor confidence. The SEC's proposal, while acknowledging the inclusion of crypto assets, fails to provide clear guidance on how investment advisers can effectively safeguard these assets. The unique characteristics of digital assets require specific safeguards and controls to address potential risks such as cyber threats, fraudulent activities, and potential loss due to operational vulnerabilities. Without proper guidance and coordination, investment advisers may struggle to implement appropriate measures, leaving client assets exposed to significant risk. In order to foster a robust regulatory framework for digital assets, it is crucial for the SEC to engage in comprehensive coordination efforts with other relevant regulatory authorities such as the Commodity Futures Trading Commission (CFTC), the Financial Crimes Enforcement Network (FinCEN), and the Internal Revenue Service (IRS). By fostering cooperation and harmonization, investors and market participants would benefit from a consistent and comprehensive regulatory approach, reducing confusion and improving safeguards for digital assets. Furthermore, I believe the proposed rule could benefit from further clarity regarding the demonstration of exclusive control over digital assets. Digital assets held in custody present unique challenges in proving exclusive control, as they rely on decentralized technologies that aim to eliminate trusted third parties. Investment advisers seeking to safely preserve client assets may face challenges in meeting the proposed requirement without clear guidance on assessing control in the context of blockchain technology. In addition to regulatory coordination and clarity regarding digital assets, I strongly urge the SEC to consider the potential unintended consequences of the proposed rule. The rapid evolution of digital assets requires a careful balance between investor protection and regulatory burdens. Overly burdensome requirements could stifle innovation and drive market participants, including investment advisers, away to jurisdictions with more favorable regulatory environments. It is imperative for the SEC to assess the rule's potential impact on the economy, competition, and capital formation to ensure that the benefits of the rule outweigh its costs. Moreover, the SEC should consider engaging in a thorough and ongoing dialogue with market participants, experts, and relevant stakeholders to keep pace with the rapidly changing digital asset landscape. Regulatory flexibility is vital to adapt to emerging risks and technology without invoking unnecessary compliance costs on investment advisers. I would like to emphasize the importance of public comments and thoughtful engagement in shaping the final rule. By soliciting feedback and conducting a robust analysis of all stakeholder perspectives, the SEC can craft a rule that strikes the right balance between investor protection and the promotion of technological innovation. In conclusion, I strongly urge the SEC to enhance coordination efforts with other regulatory agencies, provide clear guidance on safeguarding digital assets, and assess the potential unintended consequences of the proposed rule on the economy. By doing so, the SEC can develop a comprehensive and effective regulatory framework that promotes investor protection and supports the growth of digital assets in a safe and transparent manner. Thank you for considering my public comment on this important matter. Sincerely, A Concerned U.S. Citizen