Oct. 30, 2023
Dear Securities and Exchange Commission I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets". While I understand the importance of enhancing investor protections and addressing gaps in the custody rule, I believe that the proposed rule may have potential negative impacts on the decentralized finance (DeFi) sector and hinder the growth and development of innovative projects. In today's rapidly evolving financial landscape, digital assets and cryptocurrencies have emerged as transformative forces, enabling new forms of financial transactions and promoting financial inclusion. These technologies, built on blockchain platforms, offer decentralized and secure alternatives to traditional financial systems. However, regulatory uncertainties and restrictive rules can stifle innovation and hinder the growth of this promising sector. The proposed rule, particularly its application to digital assets or crypto, raises concerns about the potential negative impact on the United States' financial sector. Striking the right balance between investor protection and regulatory clarity is crucial to foster innovation in this space. I urge the Securities and Exchange Commission to consider the following points: 1. Regulatory Certainty: Clear and unambiguous regulations are vital to attract investments and foster growth in the decentralized finance sector. The proposed rule should provide specific guidance on how digital assets and cryptocurrencies are treated under the custody rule, acknowledging their unique characteristics and technological underpinnings. 2. Proportional and Risk-Based Approach: The application of the custody rule to digital assets should take into account the varying risks associated with different types of assets and custody arrangements. A one-size-fits-all approach may hamper innovation and impede the development of new and inclusive financial solutions. 3. Foster Innovation and Competition: The United States has long been a hub for technological innovation, and it is essential to maintain this position in the rapidly evolving digital asset space. Any rule or regulation should promote competition, facilitate entrepreneurial activities, and encourage the establishment of a supportive regulatory environment that attracts innovators and fosters economic growth. Moreover, the proposed rule's amendments to the surprise examination requirement raise concerns about its potential impact on investment advisers and their compliance costs. While it is crucial to safeguard client assets and mitigate the risk of asset loss, there should be a balanced approach that considers the operational and financial implications for investment advisers. The rule should provide more guidance on how surprise examinations can be carried out without unduly burdening industry participants. Furthermore, the economic analysis provided in the proposal acknowledges the challenge of estimating the economic effects due to varying practices among investment advisers. In light of this, there should be a more detailed assessment of the potential costs and benefits of the proposed rule, including a thorough consideration of its impact on competition, investment efficiency, and capital formation. A comprehensive analysis will ensure that the proposed rule achieves its intended objectives while minimizing any unintended consequences. In conclusion, while the safeguarding of client assets is of utmost importance, it is crucial to carefully consider the potential negative impact on decentralized finance and the broader financial sector. A measured and balanced approach, with clear guidance and considerations for different types of assets and custody arrangements, will help foster innovation, maintain competitiveness, and ensure a favorable regulatory environment in the United States. Thank you for considering my comments. Please do not hesitate to email me at CryptoFrontier1017@proton.me if you require any further information. Sent with Proton Mail secure email.