Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing to express my strong concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I recognize the intention to enhance investor protections and address gaps in the custody rule, I believe that certain aspects of the proposed rule may have a negative impact on the growing decentralized finance (DeFi) industry, specifically in relation to digital assets or cryptocurrencies. Digital assets, such as cryptocurrencies, have emerged as a transformative force in the realm of finance, promising increased accessibility, transparency, and efficiency. However, regulatory uncertainties surrounding these assets have stifled innovation and hindered their adoption. By introducing additional requirements and limitations through the proposed rule, there is a risk of impeding the growth and development of DeFi projects, limiting their potential for financial inclusion. The proposed rule aims to address the application of the safeguarding requirements to digital assets, including cryptocurrencies. While it is important to ensure investor protection and safeguard client assets, it is equally vital to foster an environment that encourages innovation and the exploration of new financial models. Imposing stringent regulatory requirements on digital assets may create unnecessary barriers that prevent entrepreneurs and developers from exploring the full potential of this technology. Moreover, the specific challenges posed by digital assets in demonstrating exclusive control should be carefully considered. The unique nature of these assets, residing on decentralized networks, makes it difficult to apply traditional custody rules. Blanket regulations without taking into account the technical nuances of digital assets may unintentionally stifle growth, innovation, and potentially expose investors to greater risks due to lack of sufficient custodial options. Additionally, the proposed rule's amendments to the surprise examination requirement and the investment adviser recordkeeping rule may place heavy burdens on investment advisers who deal with digital assets. The technological complexities and rapidly evolving nature of digital assets make compliance with these requirements a significant challenge, both in terms of resources and expertise. This could potentially discourage investment advisers from engaging with digital assets, depriving investors of diversification opportunities and impeding the growth of this emerging asset class. In my view, it is crucial that the SEC takes a balanced and nuanced approach to the regulation of digital assets. Rather than imposing strict rules that may stifle innovation, I urge the SEC to actively engage with stakeholders in the DeFi space to better understand the unique challenges and potentials of digital assets. This collaborative approach would enable regulators to strike a balance between investor protection and fostering an environment that supports the growth and innovation of the decentralized finance industry. In conclusion, while I recognize the importance of safeguarding client assets and enhancing investor protections, I believe that the proposed rule on "Safeguarding Advisory Client Assets" should carefully consider the potential negative impact on the decentralized finance industry. A balanced and nuanced approach, taking into account the unique challenges and potentials of digital assets, is essential to foster a regulatory environment that promotes innovation, financial inclusion, and investor protection. Thank you for considering my concerns. I appreciate the opportunity to provide input on this important matter. Sincerely, Jacob Helvey