Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing to submit a public comment on the proposed rule "Safeguarding Advisory Client Assets" (File Number S7-04-23) issued by the SEC. I appreciate the agency's efforts to enhance investor protections and address gaps in the custody rule. However, I have concerns regarding the proposed rule's inadequate consideration of smart contracts and the need for the rule itself. Firstly, I would like to address the inadequate consideration of smart contracts in the proposed rule. Smart contracts, as self-executing agreements with the terms of the agreement directly written into code, have unique characteristics that must be taken into account when formulating regulations. However, the proposal does not adequately address these characteristics, leading to potential regulatory challenges and legal uncertainties. As smart contracts continue to gain popularity and become integrated into various investment advisory services, it is crucial for the SEC to provide clear guidelines on their treatment and ensure a level playing field for all market participants. Furthermore, I question the need for the proposed rule itself and suggest considering alternative approaches. While the SEC has stated that the rule aims to enhance investor protections and reduce the risk of asset loss, it is important to critically evaluate the necessity and efficacy of the proposed measures. One alternative approach could be to encourage voluntary disclosure and transparency, allowing market forces and investor preferences to determine the appropriate level of safeguards. By promoting voluntary best practices, the SEC can encourage responsible behavior while avoiding overly burdensome and prescriptive regulations. Moreover, it is essential to assess the potential costs and drawbacks of implementing the proposed rule. Regulatory requirements can impose significant compliance costs on investment advisers, which in turn may be passed on to clients. Therefore, it is crucial to carefully evaluate whether the benefits of the proposed rule justify its costs and potential negative impacts on the efficiency and competitiveness of advisory services. Rigorous cost-benefit analysis should be conducted to ensure that the proposed rule does not hinder competition or hinder capital formation. Additionally, I would like to assert the importance of soliciting public comments on reasonable alternatives to the proposed rule. The SEC should consider alternative approaches suggested by industry participants and market experts. These alternative proposals may provide innovative solutions that achieve the desired investor protections while minimizing compliance burdens and unintended consequences. By actively engaging with the public and seeking diverse perspectives, the SEC can ensure that the final rule strikes an appropriate balance between regulatory efficacy and industry vitality. In conclusion, I urge the SEC to address the inadequate consideration of smart contracts in the proposed rule and to carefully evaluate the need for the rule itself. It is crucial to cultivate an environment that fosters innovation, competition, and responsible investor protection. By thoroughly analyzing the potential costs and benefits of the proposed rule and considering reasonable alternatives, the SEC can craft a regulation that achieves its intended objectives in a balanced and efficient manner. Thank you for considering my comments on this important matter. Take care.