Oct. 28, 2023
I am grateful for the opportunity to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" from the Securities and Exchange Commission (SEC). While I appreciate the SEC's effort to enhance investor protections and address gaps in the custody rule, I have concerns regarding potential overreach of regulatory authority and the impact of the proposed rule on digital assets or cryptocurrencies. I. Potential Overreach of Regulatory Authority The SEC's proposed rule appears to exceed its regulatory authority, encroaching on areas that should be regulated by other agencies. For instance, the rule includes provisions regarding digital assets or crypto, which is an emerging and rapidly evolving sector. This raises concerns about whether the SEC has the expertise and jurisdiction to effectively regulate this space, as other regulatory bodies such as the Commodity Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN) are already involved. Digital assets or cryptocurrencies are built on blockchain technology and have the potential to transform finance. However, regulatory uncertainties pose significant challenges for the industry. Imposing burdensome regulations without proper understanding and coordination with other relevant agencies may stifle innovation and hinder the growth of this promising sector. Therefore, it is essential for the SEC to ensure that its regulations are reasonably tailored and backed by a thorough understanding of the unique characteristics and risks associated with digital assets. II. Impact on Digital Assets or Crypto The proposed rule's application to digital assets or crypto raises concerns regarding the practicality of demonstrating exclusive control over these assets, as mentioned in the rule. Given the decentralized nature of blockchain technology, it can be challenging to establish exclusive control over digital assets where private keys or unique identifiers are utilized. Imposing overly burdensome requirements in this area may deter investment advisers from engaging with digital assets, hindering their ability to diversify portfolios and potentially limiting opportunities for investors. Furthermore, the proposed rule's inclusion of digital assets has broader implications for the regulatory landscape of this nascent industry. Clarification and harmonization of regulations are necessary to avoid regulatory redundancies and conflicts that may arise due to multiple agencies asserting jurisdiction over digital assets. Coordination and collaboration among different regulators is crucial to ensure a coherent and effective regulatory framework that fosters innovation while maintaining investor protections. In conclusion, while the SEC's proposed rule "Safeguarding Advisory Client Assets" aims to enhance investor protections and address gaps in the custody rule, I urge the SEC to carefully consider the potential overreach of its regulatory authority and the need for rational and coordinated regulation of digital assets or crypto. By striking the right balance between innovation and investor protection, we can foster a thriving investment landscape that benefits both the industry and investors. Thank you for considering my concerns and comments.