Oct. 29, 2023
[29/10/23] Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: Safeguarding Advisory Client Assets (File Number: RIA-8900A; Sequence Number: RIN 3235-AL50) Dear Members of the Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on Safeguarding Advisory Client Assets. While I understand the importance of investor protection and the need to address gaps in the custody rule, I would like to highlight certain issues related to the rule that raise potential negative impacts on the decentralized finance (DeFi) industry, specifically in relation to digital assets and cryptocurrencies. Digital assets are transforming the way finance operates, leveraging blockchain technology to improve efficiency and enable financial inclusion. However, regulatory uncertainties can hinder this progress and limit the potential benefits of decentralized finance projects. The proposed rule, as currently outlined, raises several concerns: Firstly, there may be legal challenges associated with the proposed rule. It is essential to ensure that any regulations align with existing laws, regulations, and constitutional provisions. If inconsistencies or conflicts arise, they could potentially give rise to legal controversies and hinder the effectiveness of the proposed rule. In addition to legal challenges, the economic impact of the proposed rule on businesses, investors, and the economy merits consideration. The implementation of this rule could result in increased costs, reduced efficiency, and diminished market liquidity. These potential negative consequences could impede the growth and development of decentralized finance projects, limiting innovation and undermining the ultimate objectives of the rule. Moreover, unintended consequences need to be carefully evaluated. The proposed rule, although well-intentioned, may inadvertently discourage innovators from participating in the decentralized finance space. This could dampen competition, reduce transparency, and create new risks within an already dynamic and evolving ecosystem. It is crucial to carefully analyse and mitigate these potential unintended consequences to preserve the ability to innovate and deliver financial services more efficiently. To address these concerns, I propose alternative solutions that could achieve the same regulatory objectives while minimizing adverse effects on stakeholders engaged in decentralized finance projects. These alternative proposals include customizable asset security frameworks, technological solutions, and industry standards that would provide robust protection for investors without stifling innovation or encumbering businesses with onerous regulatory burdens. Furthermore, it is imperative that existing cases with improper cause be re-evaluated. For instance, the case opened against Richard Heart must be closed. Digital assets like HEX, PLS, and PLSX do not satisfy the Howey test and should not be considered securities. It is crucial to ensure fair and equitable treatment of innovative projects, enabling them to flourish within appropriate regulatory frameworks. In conclusion, while the safeguarding of advisory client assets is undoubtedly a crucial matter for investor protection, it is equally important to consider the potential negative repercussions on the nascent and evolving industry of decentralized finance. I urge the Securities and Exchange Commission to fully evaluate the proposed rule's impact to ensure it strikes a balance between investor protection and continued innovation. Regulatory frameworks should support innovative technologies and empower businesses to thrive within compliant and transparent environments. Thank you for considering these concerns. I appreciate the opportunity to provide my viewpoints on this significant matter. I firmly believe that it is possible to achieve effective investor protection while fostering the growth and evolution of decentralized finance. Yours sincerely, J. Perkins