Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing to provide my comments and concerns regarding the proposal on "Safeguarding Advisory Client Assets" (Regulation ___ S7-04-23) Firstly, I would like to address the lack of clarity in the definition of digital assets within the proposed rule. Digital assets, such as cryptocurrencies, have rapidly gained popularity and have disrupted traditional financial systems. However, the proposal fails to provide clear guidance on what constitutes a digital asset, leading to confusion and potential misinterpretation. Given the volatile nature of digital assets and the potential risks involved, it is crucial that regulators provide specific definitions and guidelines to ensure investor protection and foster innovation in this rapidly evolving space. Furthermore, the proposed rule acknowledges the challenges in demonstrating exclusive control over digital assets, particularly with regards to crypto assets. While it is understandable that the unique nature of digital assets makes custody arrangements more complex, it is essential that the rule addresses these challenges comprehensively. Without clear guidance and specific requirements for digital asset custody, investors may be exposed to increased risks, and the industry may lack the necessary protections to foster trust and broader adoption of digital assets. I also have concerns regarding the economic impact of the proposed rule. While the SEC acknowledges the costs and benefits of the amendments, it is important to ensure that the benefits clearly outweigh the potential burdens imposed on investment advisers. The cost of implementing and complying with the proposed rule should be carefully evaluated to avoid undue barriers to entry, particularly for smaller entities. Striking a balance between investor protections and compliance costs is essential to promote a fair and competitive market environment. With regards to the amendments to the investment adviser recordkeeping rule, I commend the SEC for recognizing the importance of enhancing oversight and investor protection. However, it is essential to ensure that the burden of recordkeeping does not become excessive. Small advisory firms may be particularly impacted, as they may lack the financial resources and dedicated compliance teams to carry out extensive recordkeeping activities. Consideration should be given to the potential cumulative burden on these firms, and adjustments should be made to avoid unnecessary administrative costs that could ultimately affect their ability to serve their clients effectively. Additionally, I appreciate the SEC's efforts to enhance transparency through the changes to Form ADV. By requiring advisers to report custody of client assets and provide information about custodians and accountants involved in safeguarding assets, the proposal aims to improve regulatory oversight. However, it is crucial that the information collected through Form ADV strikes the right balance between ensuring transparency and preserving the confidentiality and integrity of sensitive client data. Protecting client privacy should remain a top priority throughout the implementation of these changes. In conclusion, I urge the SEC to carefully consider and address the concerns raised in my comments. Clear definitions and guidelines for digital assets, a balanced approach to economic impact and compliance costs, and a focus on safeguarding client privacy are all crucial for the successful implementation of the proposed rule. I appreciate the opportunity to provide feedback and look forward to further dialogue on these important matters. Sincerely, Martin Masakowski