Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on the Safeguarding Advisory Client Assets, as outlined by the Securities and Exchange Commission (SEC). While I appreciate the efforts to enhance investor protections and address gaps in the custody rule, there are several aspects of the proposal that require further consideration and revision. One significant concern I have is the absence of regulatory clarity for security tokens, or digital assets. The proposal fails to provide clear guidelines on how these assets should be treated, thus creating uncertainty and hindering investor protection. As digital assets, especially cryptocurrencies built on blockchain technology, continue to transform the financial landscape, it is crucial that appropriate regulatory frameworks are in place to address the unique challenges they present. The SEC should take into account the rapid evolution of digital assets and work towards establishing a comprehensive and transparent regulatory regime for security tokens. By doing so, the SEC can ensure investor confidence, foster innovation, and facilitate capital formation. Clarity in regulations would not only protect investors but also provide guidance to investment advisers on how to effectively safeguard client assets in the context of this emerging asset class. Moreover, the proposed rule should incorporate provisions that address the specific challenges posed by digital assets, such as the verification of exclusive control. Given their unique characteristics, demonstrating exclusive control over digital assets may present significant challenges, and the current proposal does not adequately address this issue. Therefore, I urge the SEC to consider developing a robust and practical framework that accounts for the nuances of digital assets, including the custody and verification requirements. In addition to the concerns related to digital assets, I would like to draw attention to the economic analysis of the proposed rule. It is commendable that the SEC has taken into consideration the costs and benefits associated with the amendments. However, I believe that a more nuanced analysis is necessary to accurately assess the potential impact of the proposed rule on stakeholders. The SEC should collaborate with experts from various fields to comprehensively evaluate the costs, benefits, and potential unintended consequences of the proposed rule. By engaging with industry participants, academics, and other relevant stakeholders, the SEC can ensure that the regulatory framework strikes an appropriate balance between investor protection and fostering competition, efficiency, and capital formation in the advisory industry. Furthermore, the SEC should consider the potential impact of the proposed rule on small entities. While it is encouraging to note that most small advisers registered with state authorities would not be significantly affected, it is essential to carefully assess the compliance burdens faced by the SEC-registered small advisers subject to the proposed rule. Measures should be taken to prevent any unintended hardships resulting from the regulatory requirements, especially for smaller entities. In conclusion, as a concerned citizen, I believe that addressing the absence of regulatory clarity for security tokens and refining the economic analysis are critical for ensuring the effectiveness and fairness of the proposed rule on the Safeguarding Advisory Client Assets. By taking into account the unique nature of digital assets and conducting a thorough evaluation of the costs, benefits, and impact on small entities, the SEC can strike the right balance between protecting investors and encouraging innovation in the advisory industry. Thank you for considering my concerns and priorities in relation to this proposed rule. I trust that the SEC will give due attention to the issues raised and continue working towards a robust and inclusive safeguarding framework that serves the best interests of investors and the industry as a whole. Sincerely, A Concerned U.S. Citizen