Oct. 29, 2023
Ronald McWhirter [REDACTED] Dear Sir or Madam, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" and its potential impact on the digital asset industry. While I appreciate the Securities and Exchange Commission's (SEC) efforts to enhance investor protections, I believe that the proposed rule may impose overly burdensome requirements on investment advisers and hinder innovation in the rapidly growing field of cryptocurrencies. The SEC's inclusion of digital assets in the proposed rule acknowledges their increasing prominence and the need for regulatory oversight. However, I urge the SEC to consider the unique challenges faced by blockchain-based markets and the potential unintended consequences of overly prescriptive regulations. Firstly, the proposed rules place a burden on exchanges to comply with market abuse and manipulation detection, which may be challenging given the complexity of blockchain-based markets. Digital assets operate differently from traditional securities, and their decentralized nature presents new challenges for detecting and preventing market manipulation. It is crucial for the SEC to work closely with industry participants to develop effective market surveillance mechanisms that do not stifle innovation or unduly burden exchanges. Furthermore, the proposed rule should provide clearer guidance on the treatment of digital assets held by investment advisers. The evolving nature of digital assets has led to considerable regulatory uncertainty, with different agencies classifying them differently. Clarity regarding the characterization and custody requirements for digital assets would foster investor confidence and provide a framework for compliant practices in the industry. Additionally, the proposed rule's recordkeeping and registration requirements should appropriately account for the unique features of digital assets. Ensuring the safekeeping of client assets is of utmost importance, but imposing arduous and ill-fitting requirements could discourage investment advisers from engaging with digital assets. The SEC should consider tailoring the requirements to digital assets to strike a balance between investor protection and fostering innovation. Moreover, the proposed amendments to Form ADV necessitate increased reporting of custody of digital assets and information about custodians and accountants involved in safeguarding these assets. It is crucial to strike the right balance between obtaining necessary information and preventing an excessive administrative burden. Simplified reporting processes specifically tailored to digital assets would alleviate this burden and support efficient regulatory oversight. I applaud the SEC's dedication to enhancing investor protections and addressing the unique challenges posed by digital assets. However, I urge the SEC to consider the potential unintended consequences of the proposed rule on blockchain-based markets. Collaboration with industry participants, clear guidance, and tailored requirements will ensure that investor protection is achieved without stifling innovation. I appreciate the opportunity to provide my input, and I hope that the SEC carefully considers the concerns raised in this letter. Thank you for considering my public comment. Sincerely, Ronald McWhirter