Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets." While I applaud the SEC's efforts to enhance investor protections and address gaps in the custody rule, there are several areas of concern that need to be addressed before finalizing the rule. First and foremost, it is evident that the SEC lacks sufficient expertise in digital assets and cryptocurrency. This is particularly concerning considering the proposed rule's inclusion of crypto assets and challenges in demonstrating exclusive control over them. The unique characteristics and complexities of the crypto industry necessitate a deep understanding of blockchain technology and decentralized finance (DeFi), which the SEC seems to be lacking. One of the major issues in the proposed rule is the confusion it creates with reporting requirements for participants in the DeFi space. The proposed regulations mandate reporting from various participants, resulting in multiple and inconsistent reports for the same transactions. This not only burdens the industry with unnecessary compliance costs but also hinders the effectiveness of regulatory oversight. Furthermore, the lack of clarity and specificity in the proposed rule raises concerns about its practical implementation. Without clear guidelines on how to comply with the requirements, investment advisers may face challenges in adequately safeguarding client assets. It is crucial for the SEC to provide detailed instructions and best practices to ensure consistent and effective compliance among market participants. Additionally, the proposed rule's economic analysis seems to overlook the potential impact on small entities and the overall economy. While the SEC has noted the estimated compliance costs for advisers, there is a need for a more comprehensive evaluation of the rule's impact on small businesses, competition, and capital formation. It is essential to ensure that the regulatory framework strikes a balance between investor protection and promoting innovation and growth. In light of these concerns, I urge the SEC to reconsider and revise certain aspects of the proposed rule. It is necessary to engage industry experts, particularly those with expertise in the digital asset and cryptocurrency space, to ensure that the regulations are appropriately tailored and informed by industry best practices. In conclusion, while I appreciate the SEC's efforts to enhance investor protections through the proposed rule, it is imperative to address the issues and concerns raised regarding the lack of industry expertise, confusing reporting requirements, and potential unintended consequences. By working together with industry participants and considering their input, the SEC can create a regulatory framework that effectively safeguards client assets and fosters innovation in the advisory industry. Thank you for considering my comments on the proposed rule. I look forward to seeing a revised version that addresses these concerns and promotes a balanced approach to investor protection and market growth. Thank You Kindly, anonymous