Oct. 29, 2023
Securities and Exchange Commission 100 F Street, NE Washington, DC 20549 Re: Safeguarding Advisory Client Assets - File No. S7-31-20 Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" (File No. S7-31-20) published by the Commission on [insert date]. While I appreciate the Commission's efforts to enhance investor protections and address gaps in the custody rule, I have concerns regarding certain aspects of the proposed rule. In particular, I find the potential overreach of regulatory authority and the regulatory burdens associated with digital assets or crypto to be areas of concern. Potential Overreach of Regulatory Authority As an investor, I believe it is crucial for regulatory bodies to operate within their designated authority and avoid encroaching on areas that should be regulated by other agencies. The proposed rule, in its current form, may exceed the SEC's regulatory authority and intrude into domains better suited for other agencies. This presents a risk of regulatory ambiguity and confusion, impeding clear regulatory boundaries and hindering effective oversight. Digital Assets or Crypto Digital assets, such as cryptocurrency, have transformed the financial industry through the use of blockchain technology. However, the regulatory uncertainties surrounding these assets pose significant challenges for advisers and investors alike. The proposed rule should carefully consider the unique characteristics of digital assets and establish clear and flexible guidance that promotes effective safeguards without stifling innovation or burdening market participants. Regulatory Burdens One of my primary concerns with the proposed rule is the potential for excessive regulatory burdens placed on investment advisers. Existing regulations already pose considerable challenges, and further regulatory hurdles may create unnecessary barriers to entrance and growth. The Commission should strike a balance between investor protection and the need for flexibility and innovation, ensuring that the costs and administrative burdens associated with compliance are reasonable and proportionate to the benefits achieved. Lack of Transparency Transparency is a crucial element in ensuring investor trust and market integrity. While the proposed rule aims to enhance transparency, I am concerned about elements that may lack adequate notice, clarity, or sufficient guidance. Adequate transparency and clear rules are paramount to enable advisers to understand their obligations fully and investors to make informed decisions. Inflexible Approach An excessively rigid and inflexible approach to regulation can stifle industry developments and hinder market participants' ability to address unique circumstances effectively. Flexibility is vital to accommodate the diverse range of investment strategies and client needs. The proposed rule should allow for reasonable exceptions and adaptability to provide investment advisers the necessary tools to safeguard client assets efficiently. Administrative Burdens and Excessive Paperwork An important consideration when evaluating the effectiveness of regulations is the burden placed on compliance and recordkeeping. The proposed rule, as it stands, may impose unnecessary administrative burdens and demand excessive paperwork from investment advisers. To ensure effective implementation, regulators should consider refining the reporting requirements to minimize the administrative strain while maintaining appropriate oversight and investor protection. Uncertainty and Lack of Enforcement Clarity Regulatory ambiguity and lack of clear rules can impede advisers' ability to comply with requirements and investors' ability to evaluate advisers' performance. To optimize investor protection, prompt enforcement of clear guidelines is crucial. The proposed rule should clarify the enforcement mechanisms and expectations to promote compliance, investor confidence, and market integrity. In conclusion, I appreciate the Securities and Exchange Commission's efforts to enhance investor protections through the proposed rule "Safeguarding Advisory Client Assets." However, I have outlined concerns related to potential overreach of regulatory authority and the burdensome nature of regulating digital assets or crypto. I urge the Commission to carefully consider these concerns, taking into account the need for clarity, flexibility, and proportionality in the final rule. Thank you for the opportunity to provide my input on this important matter. I trust that the Commission will give due consideration to the concerns raised during the public comment period and work towards a final rule that balances investor protection with innovation, transparency, and ease of compliance. Yours faithfully,