Oct. 29, 2023
Public Comment on "Safeguarding Advisory Client Assets" Proposal I am writing to provide my commentary on the proposed rule "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). While I commend the SEC's goal of enhancing investor protection and addressing gaps in the custody rule, I strongly urge the Commission to reconsider certain aspects of the proposed rule that may negatively impact the growing market of digital assets, particularly cryptocurrency. The proposed rule fails to adequately consider the unique properties and technological complexities of cryptocurrency. Digital assets, such as cryptocurrency, have emerged as transformative financial instruments built on blockchain technology. However, these assets operate within a decentralized framework that requires a nuanced approach to regulation. By imposing impractical regulatory requirements, the SEC risks stifling innovation and limiting the potential benefits of digital assets. The evolution of cryptocurrency has introduced new challenges in terms of custody and safekeeping. Existing regulations often struggle to fully comprehend or adapt to these new forms of digital assets. The SEC's failure to acknowledge the decentralized nature of cryptocurrency leads to unworkable regulatory proposals that may hinder market participants from actively engaging in this innovative space. Furthermore, the proposed rule's definition of custody appears to broaden the scope excessively, including even those with limited access or control over digital assets. This expansion not only poses practical challenges for industry participants but also leads to an undue burden on investment advisers who may find it difficult to comply with these unyielding requirements. It is essential for the SEC to promote investor protection while also fostering innovation and competition. A balance must be struck to ensure that regulation helps to build a secure environment while incentivizing growth and development in the digital asset space. To achieve this balance, the SEC should leverage its existing framework to develop tailored regulations for digital assets that consider their unique attributes. Furthermore, the proposed rule adds significant compliance costs through increased paperwork and recordkeeping. This burden falls not only on investment advisers but also on qualified custodians who support the safekeeping of digital assets. By imposing excessive documentation requirements, the SEC risks deterring new qualified custodians from entering the market. This, in turn, limits choices for investors and reduces competition, leading to potential negative impacts on the overall ecosystem. To address these concerns, I urge the SEC to collaborate with industry experts, including digital asset custodians and blockchain technology specialists, to co-create regulations that strike a balance between investor protection and the unique needs of the digital asset ecosystem. Such collaboration will foster innovation, develop best practices, and ensure that the proposed rule does not inadvertently hamper the potential benefits of digital assets. In conclusion, while I appreciate the SEC's efforts to enhance investor protection through the proposed rule, I strongly urge the commission to reconsider the provisions that impose impractical requirements on the rapidly evolving field of digital assets. The SEC should recognize and account for the decentralized and complex nature of cryptocurrencies, fostering a regulatory environment that encourages innovation and fair competition while safeguarding investor interests. By conducting a more comprehensive analysis and engaging in fruitful collaboration with industry stakeholders, the SEC can help build a stronger and more secure financial system that embraces the opportunities offered by blockchain technology and digital assets. Thank you for considering my comments on this matter. I trust that the SEC will carefully evaluate the concerns raised by commenters like myself and refine the proposed rule to achieve a balanced approach that embraces innovation, protects investors, and supports the continued growth of the digital asset industry. Sincerely, Nick Beston