Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing in response to the proposal titled "Safeguarding Advisory Client Assets," in which the Securities and Exchange Commission (SEC) aims to address the safeguarding of client assets by investment advisers. While I appreciate the objective of enhancing investor protections and addressing gaps in the custody rule, I have some concerns and suggestions regarding the proposed rule. Firstly, I am concerned about the scope of the rule and its implications for tokenized debt instruments. The proposal appears to lack adequate consideration of the unique characteristics of these instruments, such as their digitized nature and reliance on blockchain technology. Tokenized debt instruments are helping to transform the financial industry by creating new avenues for capital formation. In order to foster innovation and support the evolving landscape of digital assets, it is crucial for the SEC to carefully consider the potential impact of the proposed rule on tokenized debt instruments and ensure that any regulatory requirements are appropriate and tailored to their specific features. Furthermore, the proposal discusses the application of the rule to crypto assets, recognizing the challenges in demonstrating exclusive control over these assets. While it is important to address these challenges, it is equally important to strike a balance between investor protection and fostering innovation in the crypto space. A flexible regulatory framework that promotes responsible practices while allowing for continued growth and development of the industry is needed. It is crucial for the SEC to ensure that the proposed rule does not unintentionally stifle innovation or hinder the development and adoption of digital assets. Additionally, the proposal addresses assets that cannot be maintained with a qualified custodian and outlines enhanced recordkeeping, separation of duties, and regular reviews as requirements for safeguarding these assets. While I acknowledge the importance of protecting client assets, it is essential to consider the practical implications and costs associated with these requirements. Small entities, in particular, may face significant challenges in complying with the proposed rule, as it could potentially impose a disproportionate burden on their operations. I urge the SEC to carefully evaluate the economic impact and feasibility of these requirements, especially for smaller investment advisers. Furthermore, the proposal introduces amendments to the surprise examination requirement, including a written agreement with an independent public accountant. While these measures can potentially enhance the safeguarding of client assets and reduce the risk of loss, it is important to consider the potential costs and administrative burdens associated with implementing these changes. A well-balanced approach that takes into account both the benefits and costs of the proposed amendments is crucial to ensure effective investor protection without imposing excessive burdens on investment advisers. Moreover, the proposed changes to Form ADV, which include reporting custody of client assets and disclosing information about custodians and accountants involved in safeguarding the assets, are aimed at enhancing transparency and regulatory oversight. It is crucial, however, that the reporting requirements are appropriately tailored and focus on material information that is relevant for investor protection. Excessive reporting obligations can create unnecessary burdens for investment advisers, especially smaller entities, without commensurate benefits for investors. In conclusion, I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule through the proposed rule. However, I urge the SEC to consider the concerns and suggestions raised regarding tokenized debt instruments, digital assets, and the potential burden imposed on small entities. A well-balanced regulatory framework that fosters innovation, protects investors, and supports the overall growth and development of the financial industry is of utmost importance. Thank you for considering my comments. I appreciate the opportunity to provide input on this important proposal. From, John