Subject: S7-04-23: Webform Comments from Helgorian McAfee
From: Helgorian McAfee
Affiliation:

Oct. 29, 2023

Dear Sir/Madam,

I am writing to express my concerns regarding the "Safeguarding
Advisory Client Assets" proposal by the Securities and Exchange
Commission (SEC). Although I appreciate the SEC's efforts to
enhance investor protection and address gaps in the custody rule, I
believe that certain aspects of the proposal may have unintended
negative consequences.

One area of concern is the scope of the rule, specifically in relation
to digital assets or cryptocurrencies. These innovative financial
instruments, built on blockchain technology, have the potential to
transform the finance industry. However, the regulatory uncertainties
surrounding digital assets present challenges for both investors and
investment advisers. The proposed rule, while seeking to provide
clarity, may unintentionally hinder the growth and development of
peer-to-peer exchanges, limiting user autonomy and financial
sovereignty.

Additionally, the proposed rule places significant emphasis on
demonstrating exclusive control over client assets, particularly with
regards to digital assets. While I understand the importance of
safeguarding client assets, the requirement to demonstrate exclusive
control may contradict the principles of decentralization and privacy
that underpin many digital asset platforms. Striking the right balance
between investor protection and preserving the unique characteristics
of digital assets is crucial.

Moreover, the SEC's proposed amendments to the surprise
examination requirement may impose substantial compliance costs on
investment advisers. While ensuring the safeguarding of client assets
is vital, it is crucial to consider the potential burden placed on
advisers, especially smaller entities. The proposed rule should allow
for flexibility, enabling advisers to meet the requirements without
hindering their ability to effectively serve their clients.

Furthermore, the economic analysis accompanying the proposal
acknowledges the complexity of estimating the economic effects due to
variations in practices among investment advisers. Therefore, it is
essential for the SEC to carefully consider the potential impact on
efficiency, competition, and capital formation. The proposed rule
should not inadvertently impede innovation or create unnecessary
barriers for qualified custodians and investment advisers.

In conclusion, while I support the SEC's goal of enhancing
investor protection in the advisory industry, I urge the Commission to
consider the potential negative impact on peer-to-peer exchanges and
the unique challenges presented by digital assets. Flexibility,
privacy, and maintaining a balance between investor protection and
innovation are key factors to consider in crafting effective
regulations. I appreciate the opportunity to provide these comments
and hope they will be taken into consideration during the rulemaking
process.

Thank you for your attention to this matter.

Kind regards,

Helgorian McAfee