Oct. 29, 2023
Dear SEC, I am writing to provide my public comment on the proposed rule for "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). While I appreciate the aim of this rule in enhancing investor protections and addressing gaps in the custody rule, I have some concerns regarding the inadequate consideration of the unique properties of cryptocurrency. Digital assets, such as cryptocurrency, have revolutionized finance and introduced new opportunities for investors. However, the SEC's proposed rule fails to acknowledge the decentralized nature and technological complexities inherent in cryptocurrency. As a result, the regulatory requirements outlined in the proposal seem impractical and potentially burdensome for investment advisers. Cryptocurrency operates on a decentralized network, where ownership and control are spread across multiple parties. Unlike traditional assets, it does not rely on a central custodian or intermediary for safekeeping. By treating cryptocurrency with the same guidelines as traditional assets, the SEC risks stifling innovation and imposing unnecessary compliance costs on investment advisers. Moreover, the proposed rule does not adequately address the challenges associated with demonstrating exclusive control over cryptocurrency assets. Unlike traditional assets, proving sole custody and control over cryptocurrency assets can be challenging due to the nature of blockchain technology. Investment advisers may struggle to meet the strict custody requirements outlined in the proposal, further hindering their ability to provide effective advisory services in the digital asset space. I urge the SEC to reassess and tailor its regulatory approach to cryptocurrency, taking into account its unique properties and addressing the technological complexities involved. Rather than imposing widespread requirements that may hinder innovation and burden investment advisers, the SEC should work towards developing nuanced guidelines that promote investor protection without stifling growth in the digital asset industry. In addition to concerns related to cryptocurrency, I appreciate the opportunity to raise certain broader concerns regarding the proposal. The proposed rule's scope appears to expand coverage to a broader range of investments held in a client's account, including discretionary authority in custody. While the intention to enhance safeguards is commendable, it is essential to strike the right balance between protection and practicality to avoid unduly burdening investment advisers. Furthermore, the proposed rule introduces amendments to the surprise examination requirement and the investment adviser recordkeeping rule. While these amendments can contribute to improved oversight and investor protection, it is crucial to ensure that the compliance costs associated with such measures are reasonable and do not disproportionately impact smaller advisers. Lastly, I would like to express my support for the SEC's consideration of the economic analysis, benefits, costs, efficiency, competition, and capital formation effects of the proposed rule. Transparent and comprehensive assessments are vital in determining the potential impact of regulatory changes on all stakeholders. In conclusion, I urge the SEC to carefully evaluate the implications of the proposed rule on digital assets, particularly cryptocurrency, considering their unique properties and technological complexities. The regulatory approach should be practical, innovation-friendly, and not unduly burdensome for investment advisers. Furthermore, I encourage the SEC to continue to gather input and refine the proposal, ensuring a well-balanced approach that enhances investor protection while promoting growth and efficiency in the advisory industry. Thank you for considering my comments on this important matter. Sincerely, John Kim