Oct. 30, 2023
Public Comment on Regulations.gov Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" that aims to enhance investor protection and address gaps in the custody rule. While I appreciate the SEC's efforts to safeguard client assets and promote transparency in the advisory industry, I have several concerns and issues regarding the proposed rule, particularly in relation to the lack of clarity on the definition of digital assets. The rapid development and adoption of digital assets, such as cryptocurrencies, have significantly transformed the financial landscape. It is crucial for regulatory entities like the SEC to provide clear guidance on what constitutes a digital asset to ensure regulatory compliance and investor protection. However, the proposed rule lacks a comprehensive definition of digital assets, leaving room for confusion and potential misinterpretation by investment advisers. This ambiguity may hinder their ability to effectively safeguard client assets and comply with regulatory requirements. Digital assets have unique characteristics and require an understanding of blockchain technology and cybersecurity measures for proper custody. The absence of specific guidance on digital assets could impede investment advisers from effectively addressing the associated risks and challenges in custody. Given the increasing investments in digital assets and the potential impact on investor portfolios, it is crucial for the SEC to provide clear and comprehensive definitions and guidelines to ensure investor protection and regulatory compliance. Furthermore, the proposed rule acknowledges the challenges in demonstrating exclusive control over digital assets and safeguarding these assets. As the custody of digital assets often involves complex technical processes and multiple parties, it is essential for the SEC to provide guidance on best practices for demonstrating exclusive control. This will not only help investment advisers navigate the intricacies of digital asset custody but also enhance investor confidence in the industry. In addition to the lack of clarity on digital asset definitions, it is important to consider the potential impact of the proposed rule on the efficiency and competition within the advisory industry. While investor protections are of paramount importance, overly burdensome regulatory requirements may impose significant compliance costs on investment advisers. This can disproportionately affect small entities and potentially limit their ability to compete in the market. Therefore, the SEC should strike a balance between investor protections and minimizing unintended consequences that may hinder competition and innovation. In conclusion, the lack of clarity on the definition of digital assets in the proposed rule poses significant challenges for investment advisers aiming to effectively safeguard client assets. The SEC should provide comprehensive guidance on digital asset definitions and best practices to address custody-related risks and ensure regulatory compliance. Furthermore, it is crucial for the SEC to consider the potential impact of the proposed rule on competition, efficiency, and innovation within the advisory industry. I believe that with careful consideration and collaboration, the SEC can create a regulatory framework that promotes investor protection while fostering a thriving and competitive advisory industry. Thank you for considering my public comment. I appreciate the opportunity to express my concerns and contribute to the ongoing dialogue surrounding the proposed rule. Sincerely, John Chavez John Chavez