Oct. 30, 2023
Public Comment on Proposed Rule: Safeguarding Advisory Client Assets Dear Securities and Exchange Commission, I, Chris, write to provide my comments on the proposed rule "Safeguarding Advisory Client Assets" (Release No. IA-XXXX; File No. S7-XXXXX). While I appreciate the SEC's intent to enhance investor protections and address gaps in the custody rule, I have several concerns regarding the implementation and scope of the proposed rule. My focus areas of concern revolve around the inadequate consideration of the unique properties of cryptocurrency and the potential impracticality of certain regulatory requirements. Firstly, I believe that the SEC has not adequately considered the decentralized nature and technological complexities of digital assets, such as cryptocurrency. The proposal seeks to expand the coverage of the rule to include a broader range of investments, which encompass digital assets held in a client's account. However, the current regulatory framework does not fully comprehend the rapidly evolving landscape of cryptocurrencies. Imposing blanket rules without considering the intricacies of decentralized systems may stifle innovation and hinder the growth of this emerging asset class. Moreover, the proposal fails to provide clear guidance on how investment advisers can demonstrably exhibit exclusive control over crypto assets. The decentralized nature of cryptocurrencies, which relies on distributed ledgers and peer-to-peer networks, makes it a unique challenge for investment advisers to affirm complete control. Without a comprehensive understanding of the underlying technology and its implications for control, the proposed rule risks imposing impractical requirements on advisers, thereby inhibiting their ability to serve clients effectively. Furthermore, the proposed rule's emphasis on the use of qualified custodians for safeguarding client assets may not be particularly suitable for certain digital assets. The very nature of digital assets often necessitates alternative storage solutions due to technological constraints. In such cases, the rule proposes enhanced recordkeeping, separation of duties, and regular reviews to ensure the protection of assets. While these measures may be appropriate for traditional assets, they may not be practical or applicable in the context of certain digital assets. It is essential for the SEC to adopt a flexible approach that acknowledges the unique challenges and potential solutions associated with safeguarding digital assets. Additionally, I am concerned about the potential impact of the proposed rule on innovation and market competition. The regulatory environment should encourage responsible innovation and nurture competition. The current proposal, while seemingly well-intentioned, may inadvertently create barriers for smaller market participants and stifle the growth of innovative services tied to digital assets. The SEC must strike a balance between protecting investors and fostering an environment that encourages the adoption of new technologies. In order to address these concerns, I urge the SEC to engage further with industry participants and stakeholders knowledgeable in the digital asset space. A collaborative approach that integrates expertise from both the regulatory and technological realms is crucial to crafting effective and practical rules that protect investors without stifling innovation. Various market participants and organizations can provide valuable insights and propose recommendations for tailored regulatory frameworks that account for the unique properties of digital assets. In conclusion, while acknowledging the SEC's efforts to foster investor protections, it is crucial to ensure that the proposed rule adequately addresses the unique properties and challenges associated with digital assets. Taking into account the decentralized nature of cryptocurrencies, the SEC should avoid overly prescriptive and impractical requirements that hinder innovation and market competition. By fostering industry collaboration and embracing technological progress, the SEC has the opportunity to build a regulatory framework that ensures investor protection while embracing the immense potential of digital assets. Thank you for considering my comments. I appreciate the opportunity to contribute to the rulemaking process and stand ready to provide any additional information or insights you may require. Sincerely, Chris