Oct. 29, 2023
Dear Sir/Madam, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). As an engaged participant in the investment industry, I would like to express my concerns regarding several aspects of the proposed rule, primarily focusing on the issue of unequal treatment of different market participants. First and foremost, the SEC's proposed rules seem to treat different market participants inconsistently, leading to unfair competition and potential market distortions. The scope of the rule's coverage expands to include a broader range of investments held in a client's account while also introducing exceptions for specific situations. Although the intent may be to enhance investor protections, this differential treatment is likely to create disparities within the market and hinder fair competition. Additionally, the proposed rule's enhancements to the protection of client assets could inadvertently favor certain types of investments over others. The rule specifically discusses the application of the safeguarding requirements to crypto assets, highlighting the challenges faced in demonstrating exclusive control. While recognizing the need to address the unique features of digital assets, it is crucial to ensure that these regulations do not create an unfair advantage for traditional assets or disproportionately burden investment advisers operating in the crypto asset space. Furthermore, the proposed rule addresses how advisers can safeguard assets that cannot be maintained with a qualified custodian. While enhanced recordkeeping, separation of duties, and regular reviews are required, there is still a concern regarding potential discrepancies in the level of protection offered to these assets compared to those maintained with a qualified custodian. It is imperative that the SEC carefully considers the measures necessary to ensure adequate protection for all client assets, irrespective of their custodial arrangements. The rule's emphasis on the segregation of client assets is commendable, as it aims to prevent commingling with an adviser's assets. However, exceptions are provided, and this flexibility may increase the risk of mishandling or confusion surrounding the ownership of client assets. Given the paramount importance of ensuring the safeguarding and transparency of client assets, the SEC should exercise caution in delineating criteria for these exceptions and prioritize the protection of client assets. One area of concern lies in the proposed amendments to the surprise examination requirement. While the changes intend to improve the safeguarding of client assets and reduce the risk of loss, the exceptions provided for advisers with discretionary authority over client assets and those with custody solely due to a standing letter of authorization (SLOA) raise questions regarding their potential impact on investor protections. The SEC must ensure that these exceptions do not inadvertently permit opportunities for abuse or circumvention of the intended measures. Lastly, the economic analysis provided by the SEC acknowledges the challenge of estimating the economic effects due to varying practices among investment advisers. However, it is vital for the SEC to consider the potential unintended consequences that could arise from the proposed rule, especially the impact on smaller investment advisers. The SEC should ensure that the proposed regulations do not disproportionately burden small entities or hinder their ability to operate competitively in the industry. In conclusion, while I appreciate the SEC's effort to enhance investor protections through the proposed rule, I urge the commission to carefully review and address the concerns raised regarding the potential unequal treatment of different market participants. The need for fair competition, level playing field, and investor protection should be at the forefront of any rulemaking process. I believe it is crucial for the SEC to continue engaging with industry stakeholders to foster a regulatory environment that not only advances investor safeguards but also promotes innovation and competition. Thank you for considering my comments on this important proposal. I appreciate the SEC's commitment to seeking public input, and I look forward to the commission's thoughtful consideration of these concerns. Sincerely, Phil Lawrence