Oct. 29, 2023
Dear Securities and Exchange Commission, I, J. D. Humphries, am writing to provide my comments and concerns regarding the "Safeguarding Advisory Client Assets" proposal from the Securities and Exchange Commission (SEC). I appreciate the efforts made by the SEC to enhance investor protections and address gaps in the custody rule. However, I have several concerns regarding certain aspects of the proposed rule, particularly in relation to the lack of clarity on the definition of digital assets. The proposal introduces new rules to address the safeguarding of client assets held by investment advisers, including amendments to the current rule, recordkeeping requirements, and registration requirements. It expands the coverage to include a broader range of investments held in a client's account and enhances protections for client assets. While these goals are commendable, the lack of clarity regarding the definition of digital assets is concerning. Digital assets, such as cryptocurrencies, have gained significant traction in recent years and are transforming the financial landscape. However, their regulatory status remains ambiguous. The proposal does not provide clear guidance on what constitutes a digital asset, leaving investment advisers uncertain about their obligations and potential liabilities. This lack of clarity may lead to confusion and potential misinterpretation of the rule, resulting in inconsistent compliance practices. Given the transformative potential of digital assets and their inherent complexities, it is crucial for the SEC to provide explicit definitions and clarifications to ensure investment advisers can meet their obligations appropriately. Clear guidance will help advisers navigate the challenges posed by these novel assets, contribute to market stability, and protect investors from potential risks. Moreover, the proposed rule also touches upon the application of the rule to crypto assets and challenges in demonstrating exclusive control over these assets. The SEC should explicitly address these challenges and provide guidance on how investment advisers can demonstrate exclusive control over crypto assets. Without clear guidelines, investment advisers may inadvertently breach the custody rule or face unnecessary compliance burdens. In addition to the lack of clarity on the definition of digital assets, I would like to emphasize the need for a balanced approach that fosters innovation while also protecting investors. Digital assets have the potential to revolutionize the financial industry, increase efficiencies, and democratize access to investment opportunities. Blanket regulations that fail to distinguish between different types of digital assets may stifle innovation and hinder the growth of this emerging sector. To achieve a comprehensive regulatory framework, the SEC should engage with industry stakeholders, including technology companies, financial institutions, and investors, to better understand the unique characteristics and risks associated with digital assets. This collaborative approach will ensure that any regulatory measures accurately capture the intricacies of the digital asset ecosystem while upholding investor protection. In conclusion, while I appreciate the SEC's efforts to address investor protections and strengthen the safeguarding of client assets, I urge the SEC to provide more clarity and guidance on the definition of digital assets. Additionally, an inclusive and collaborative approach that takes into account the unique features and potential of digital assets is essential for achieving an effective regulatory framework. Thank you for considering my comments. If there are any further areas of concern or questions I can address, please let me know. I look forward to seeing how the SEC responds to the public comments and shapes the final rule. Sincerely, J. D. Humphries