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 appreciate the SEC's aim to enhance investor protections, there are several issues within the proposed rule that need to be addressed, notably in relation to the inadequate consideration of the unique properties of cryptocurrency. Digital assets, such as cryptocurrency, have emerged as a transformative force in the financial industry. As the SEC acknowledges, these assets present regulatory challenges due to their decentralized nature and technological complexities. However, I believe the proposed rule fails to adequately consider these unique characteristics, leading to impractical and burdensome regulatory requirements. One of my major concerns lies in the expanded scope of the rule to include crypto assets. While it is important to ensure the safeguarding of client assets, the SEC must recognize that traditional custody arrangements may not be suitable for certain digital assets. The proposed rule does not take into account the different methods of custody and secure storage specific to cryptocurrencies. By applying the same requirements to both traditional and digital assets, the SEC risks stifling innovation and imposing unnecessary burdens on market participants. Furthermore, the proposed rule fails to provide clear guidance on how to demonstrate exclusive control over crypto assets. Given the distributed nature of blockchain technology, it is often challenging to establish and maintain exclusive control over digital assets. The SEC should work towards providing more practical and feasible solutions that recognize the innovative nature of these assets while still prioritizing investor protection. Additionally, the proposed rule introduces enhanced recordkeeping requirements for assets that cannot be maintained with a qualified custodian. While the intention is to mitigate the risk associated with such assets, the burden of these recordkeeping obligations may outweigh any potential benefits. The SEC should carefully examine whether additional recordkeeping requirements can truly enhance investor protection without disproportionately impacting investment advisers and increasing compliance costs. As the proposed rule addresses the segregation of client assets, it is crucial to ensure that the rule allows for flexibility and exceptions when necessary. While the protection of client assets is paramount, rigid requirements for segregation could hinder the efficient management of assets, especially in cases where operational efficiencies can be achieved without compromising investor protection. In conclusion, I urge the SEC to reconsider the proposed rule with regard to the unique properties and challenges of cryptocurrency. It is essential that regulations in this space strike a balance between investor protection and fostering innovation. The SEC should collaborate with industry experts to develop rules that are practical, enforceable, and specifically tailored to the crypto industry, rather than applying the same standards across all asset classes. Thank you for considering my comments on the proposed rule. I appreciate the opportunity to provide input and look forward to a more nuanced and thoughtful approach that balances investor protection and encourages innovation in the cryptocurrency space. Sincerely, Dan Brune