Oct. 28, 2023
I would like to address the proposed rule "Safeguarding Advisory Client Assets" (Release No. IA-9046; File No. S7-09-19) by the Securities and Exchange Commission. While I do appreciate the SEC's efforts to better investor protections and address gaps in the custody rule, there are several areas of concern that I believe need to be addressed in order to ensure practical and effective regulations. 1) I am concerned about the proposal’s inadequate consideration of the unique properties of cryptocurrency and other digital assets. The current proposal does not fully take into account the decentralized nature and technological complexities of such assets. As a result, the regulatory requirements given in the proposal could impose undue burdens on investment advisers dealing with digital assets. Digital assets, like cryptocurrency, have emerged as a transformative technology in the financial industry. They offer new opportunities for investment and have the potential to revolutionize the way we transact and store value. However, the regulatory uncertainties surrounding digital assets pose significant challenges for investment advisers and the broader market. The retail investor needs the SEC to remain proportional and balanced between protection and innovation in the digital asset space. We do not need burdensome regulatory requirements that may snuff out a fledgling industry. 2) Furthermore, the proposed rule should provide clearer guidance on how investment advisers can effectively demonstrate exclusive control over digital assets. With the decentralized nature of blockchain technology, which underlies cryptocurrencies, it can be challenging or impossible to establish exclusive control and satisfy the requirements set forth in the proposed rule. The SEC should patiently work towards developing practical solutions and standards that address the technological complexities of digital asset custody. 3) In addition to addressing the concerns related to digital assets, I also urge the SEC to carefully consider the economic impact of the proposed rule. While the enhanced investor protections are commendable, it is essential to assess the costs and benefits associated with the regulatory requirements imposed on investment advisers. The SEC's economic analysis should take into account the varying practices among investment advisers to ensure that the proposed rule strikes an appropriate balance between investor protections and compliance costs. 4) Moreover, the SEC should seek input from the investment advisory community and other stakeholders to identify any potential unintended consequences of the proposed rule. This collaborative approach would help mitigate any negative impact on efficiency, competition, and capital formation. In closing, it is crucial to address the concerns raised regarding the treatment of digital assets and ensure that the regulatory requirements are practical, adaptive, and foster innovation. I also urge the SEC to consider the economic impact and collaborate with industry participants to develop effective, balanced regulations. Thank you for considering my comments.