Oct. 29, 2023
Andrew Mestman SEC Rulemaking Team Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Subject: Safeguarding Advisory Client Assets - Proposal Comment Dear Rulemaking Team, I am writing to express my concerns regarding the Securities and Exchange Commission's (SEC) proposed rule on the safeguarding of client assets by investment advisers. While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I believe there are certain areas of the proposed rule that require further clarification and thoughtful consideration. Specifically, I would like to draw attention to the lack of clarity on the definition of digital assets and its potential implications for the industry. Digital assets, such as cryptocurrency, have emerged as a transformative force in the financial landscape. However, the rapid pace of technological advancements and evolving market practices have led to regulatory uncertainties, with important terms and definitions yet to be clearly established. In the current proposal, there is inadequate guidance on what constitutes a digital asset, which contributes to confusion and potential misinterpretation in its application. Without a clear understanding of digital assets, investment advisers may face challenges in determining the appropriate safeguards to implement. Different types of digital assets have distinct characteristics and functionalities, and the lack of clarity on their definition undermines the ability of investment advisers to adequately protect client assets. Moreover, this lack of clarity can hinder communication and transparency between investment advisers and their clients. With digital assets becoming increasingly popular as investment vehicles, investors have a legitimate expectation that investment advisers will have a clear understanding of the risks associated with these assets and how they will be protected. By not providing a definitive definition of digital assets, the proposed rule risks leaving investors and advisers uncertain about the appropriate safeguards. To address this concern, I would urge the SEC to collaborate with industry experts and stakeholders to develop a more comprehensive definition of digital assets. This process should take into account the unique attributes and challenges posed by different types of digital assets, including cryptocurrencies and other blockchain-based assets. By assembling a diverse group of experts, the SEC can ensure that the definition reflects a holistic understanding of the digital asset landscape while remaining consistent with existing legal frameworks. Furthermore, investing in digital assets requires a nuanced and sophisticated approach. Investment advisers need to balance the potential benefits of these assets against their inherent risks, such as volatility and liquidity concerns. Therefore, it is imperative that the SEC's definition of digital assets considers these complexities to guide investment advisers effectively. In conclusion, while I appreciate the SEC's efforts to enhance investor protections through the proposed rule on safeguarding client assets, I believe that the lack of clarity on the definition of digital assets is a significant concern that must be addressed. By providing clear guidance, the SEC can help foster a regulatory framework that nurtures innovation and effectively safeguards investor interests in this rapidly evolving digital asset landscape. Thank you for considering my comments. I strongly encourage the SEC to embrace collaboration and expert insights to develop a more comprehensive definition of digital assets. I look forward to seeing a final rule that strikes a careful balance between investor safeguards and facilitating growth in the digital asset industry. Sincerely, Andrew Mestman