Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on Safeguarding Advisory Client Assets. While I understand the intention to enhance investor protections and address gaps in the custody rule, there are several aspects of the rule that warrant further consideration and revision. One area of concern is the scope of the rule, specifically in relation to digital assets or cryptocurrencies. As the digital asset industry continues to evolve and grow, it is important that regulations adapt to accommodate these new forms of investment. However, the proposed rule places a disproportionate burden on small businesses and startups operating in the digital asset industry, hindering innovation and growth. This could have negative implications for the overall economic impact of the industry and limit opportunities for investors. Furthermore, the rule's approach to addressing the challenges associated with demonstrating exclusive control over digital assets needs further refinement. The unique nature of blockchain technology, upon which many digital assets are built, presents unique custody challenges. It is important for the regulatory framework to acknowledge and accommodate these challenges while still ensuring appropriate safeguards for investor assets. Additionally, the proposed amendments to the surprise examination requirement, while well-intentioned, may impose significant compliance costs on investment advisers. For small businesses and startups, these costs can be particularly burdensome and could potentially limit their ability to compete in the market. It is essential to strike a balance between investor protection and the regulatory burden imposed on advisers, particularly those that may be operating on a smaller scale. Furthermore, the proposed amendments to the investment adviser recordkeeping rule and changes to Form ADV introduce additional reporting and compliance requirements. While increased transparency and regulatory oversight are important goals, it is crucial to carefully weigh the benefits of these requirements against the burden they place on advisers, particularly small businesses. Balancing the need for oversight with the practicality and feasibility of compliance is essential to ensure the rule achieves its intended objectives without stifling innovation or imposing undue burdens. In considering the economic analysis of the proposed rule, it is important to acknowledge the potential impact on small entities and startups. These businesses play a vital role in driving innovation and growth in the digital asset industry, and their ability to navigate regulatory requirements is crucial. I urge the SEC to carefully consider the potential burden placed on small businesses and startups and explore alternative measures that balance investor protection with the need for innovation and economic growth. In conclusion, I appreciate the SEC's efforts to enhance investor protections through the proposed rule on Safeguarding Advisory Client Assets. However, I believe there are certain aspects of the rule that require further consideration and revision, particularly in relation to digital assets and the burden on small businesses and startups. I encourage the SEC to carefully evaluate these concerns and ensure that the final rule strikes an appropriate balance between investor protection, innovation, and economic growth. Thank you for considering my comments. Sincerely, Jon Sent with Proton Mail secure email.