Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets" and its potential overreach of regulatory authority. While I recognize the importance of investor protection and the need to address gaps in the custody rule, it is crucial that the SEC carefully considers the scope and implications of its proposed rule. One area of concern is the inclusion of digital assets or cryptocurrencies within the rule. The rapid development and adoption of digital assets, built on blockchain technology, are transforming the financial industry. However, regulatory uncertainties surrounding these assets create challenges for both investment advisers and clients. It is essential that the SEC works in consultation with other relevant regulatory bodies, such as the Commodity Futures Trading Commission, to ensure that regulations surrounding digital assets are comprehensive, consistent, and well-coordinated. Furthermore, while the intent of the proposed rule to enhance the protection of client assets is commendable, it is essential to strike a balance that does not burden investment advisers excessively or hinder competition in the industry. The rule should provide clarity and practical guidelines that are adaptable to the diverse range of investment advisers and client needs, without imposing excessive compliance costs. We must avoid creating a regulatory environment that discourages innovation and limits capital formation. Additionally, I am concerned about the potential duplication, overlap, or conflict with rules and regulations enforced by other agencies. The proposed rule should not encroach upon areas that should rightfully be regulated by other bodies. It is crucial for the SEC to collaborate and coordinate with other regulatory authorities to promote consistency, reduce regulatory burden, and ensure effective investor protection. Furthermore, the SEC's economic analysis of the proposed rule should consider the potential unintended consequences and costs associated with implementing the rule. While it is essential to enhance investor protections and improve oversight and verification of adviser conduct, we must carefully ascertain the potential benefits and costs to both investors and investment advisers. Compliance costs should be proportionate to the risks identified and the magnitude of the changes proposed. Moreover, adequate consideration should be given to reasonable alternatives to the proposed rule. The SEC should welcome public input on alternative approaches that achieve the desired investor protections without imposing undue burdens on investment advisers. Such an inclusive approach would ensure that the concerns and perspectives of stakeholders are incorporated into the final rule. Lastly, I appreciate that the SEC has provided an opportunity for public comment and seeks input on the economic analysis, benefits, costs, efficiency, competition, and capital formation effects of the proposed rule. It is commendable that the SEC encourages comments on potential overlooked benefits and costs, as well as suggestions for reasonable alternatives. This openness to feedback demonstrates a commitment to robust and effective regulation that considers the wide-ranging impact of the proposed rule. In conclusion, while I support the SEC's objective of safeguarding advisory client assets, I urge the agency to carefully consider the potential overreach of regulatory authority, particularly in relation to digital assets and coordinated regulation with other agencies. The proposed rule should foster investor protection, promote competition, encourage innovation, and avoid undue compliance burdens on investment advisers. I appreciate the opportunity to provide feedback and hope that my concerns are taken into consideration. Thank you for your attention to this matter. Sincerely, D.H.