Oct. 29, 2023
Jonathan, I am writing to express my concerns regarding the "Safeguarding Advisory Client Assets" proposal from the Securities and Exchange Commission (SEC). While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I believe that certain aspects of the proposed rule could have detrimental effects, particularly regarding the burden it places on small businesses and startups in the digital asset industry. One area of concern is the scope of the rule. The proposed expansion of coverage to include a broader range of investments held in a client's account is commendable. However, when it comes to digital assets or crypto, the rule seems to disregard the unique challenges and regulatory uncertainties surrounding these assets. Digital assets, such as cryptocurrencies, are built on blockchain technology and are transforming the finance industry. However, innovation and growth in this sector may be hindered if small businesses and startups are burdened with disproportionate regulatory requirements that do not take into account the inherent complexities of these assets. Furthermore, the rule's requirements regarding the application of custody rules to crypto assets and the demonstration of exclusive control raise concerns. The SEC should take a nuanced approach to ensure that the rule does not stifle innovation or impose undue compliance burdens on small businesses and startups in the digital asset industry. Another area of concern is the proposed amendments to the surprise examination requirement. While I understand the need to safeguard client assets and reduce the risk of loss, the written agreement requirement with an independent public accountant may impose additional costs on small businesses and startups. These extra costs could have a disproportionately negative impact on these entities, potentially hindering their ability to compete with larger firms. Furthermore, the economic analysis of the proposed rule fails to adequately consider the impact on small businesses and startups. The analysis acknowledges the challenge of estimating economic effects due to varying practices among investment advisers. However, it is important to note that small businesses and startups make up a significant portion of the digital asset industry, and their ability to innovate and compete is crucial for the growth of this sector. The SEC should thoroughly assess the potential negative economic effects on these entities and consider reasonable alternatives to mitigate any potential harm. In conclusion, while the SEC's proposed rule on safeguarding advisory client assets is a step in the right direction to enhance investor protections, it is important to ensure that this rule does not impose a disproportionate burden on small businesses and startups in the digital asset industry. Taking a nuanced approach that considers the unique challenges of digital assets and provides reasonable alternatives for compliance will allow for innovation and growth in this sector while maintaining investor protections. As you continue to evaluate comments on the proposed rule, I urge you to carefully consider the concerns expressed by small businesses and startups in the digital asset industry. Thank you for the opportunity to provide input on this important matter. Sincerely, Jonathan Sent with Proton Mail secure email.