Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing this public comment as a concerned U.S. citizen regarding the proposed rule "Safeguarding Advisory Client Assets." I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule. However, I have concerns about the inadequate consideration of the unique properties of cryptocurrency and the potential negative consequences of the proposed regulatory requirements. Digital assets, such as cryptocurrency, have emerged as a transformative force in the financial industry. Blockchain technology, on which cryptocurrencies are built, offers unprecedented levels of security, transparency, and efficiency. However, the decentralized nature and technological complexities of cryptocurrency present unique challenges for regulators. Unfortunately, it appears that the SEC has not fully taken into account the specific characteristics and nature of digital assets in its proposed rule. This oversight may result in impractical regulatory requirements that do not align with the realities of the crypto market. One area of concern is the definition and treatment of assets in the proposed rule. While the rule aims to expand the coverage of investments held in a client's account, it is essential to consider the different nature of digital assets compared to traditional securities. The SEC should strive to distinguish between custody of cryptocurrencies and custody of traditional securities, as they involve distinct operational and technical considerations. Additionally, the proposed rule discusses the challenges of demonstrating exclusive control over crypto assets and addresses the application of the rule to this new asset class. However, it is crucial to recognize that exclusive control over digital assets is not always feasible due to the decentralized nature of blockchain networks. Imposing strict custody requirements that disregard this characteristic could result in undue burdens and hinder innovation in the cryptocurrency space. Furthermore, the proposal addresses safeguards for certain assets unable to be maintained with a qualified custodian. It is imperative for the SEC to acknowledge that digital assets may not fit neatly within the traditional definition of custodial arrangements. The rule should provide guidance on how investment advisers can effectively safeguard digital assets without unduly stifling their utility and potential. Another concern lies in the recordkeeping requirements outlined in the amendments. While enhanced recordkeeping is necessary to protect client assets, the SEC must be mindful of the unique challenges posed by digital assets. As blockchain technology ensures an immutable record of transactions, it may be redundant and burdensome to impose additional recordkeeping obligations solely for the purposes of regulatory compliance. To promote proper regulatory oversight without hindering technological innovation, the SEC should collaborate with industry experts and stakeholders to develop practical and effective regulatory frameworks that are tailored to the unique characteristics of digital assets. By embracing a more nuanced approach, the SEC can strike a balance between investor protections and fostering innovation within the burgeoning digital asset industry. Lastly, I would like to express my appreciation for the SEC's recognition of the importance of public input on the proposed rule. It is commendable that the SEC has provided an opportunity for concerned citizens like myself to voice their concerns and suggestions. I urge the SEC to carefully consider the comments and feedback received from the public during the rule-making process. In conclusion, while I appreciate the SEC's efforts to enhance investor protections, I believe that the proposed rule's inadequate consideration of the unique properties of cryptocurrency may result in impractical regulations. As a concerned U.S. citizen, I urge the SEC to foster further collaboration with industry experts to develop regulatory frameworks that strike a balance between investor protections and innovation in the digital asset space. Thank you for considering my comment. Respectfully, A Concerned U.S. Citizen