Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets." While I believe in the importance of enhancing investor protections and addressing gaps in the custody rule, I have reservations about the potential unequal treatment of different types of digital assets under this rule. The proposed rules treat different types of digital assets inconsistently, leading to confusion and potential regulatory arbitrage. As digital assets, such as cryptocurrencies, become more prevalent in the financial industry, it is crucial that regulatory frameworks keep pace with technological advancements to ensure a fair and level playing field. One of my concerns lies in the definition of digital assets and their inclusion in the proposed rules. The definition and categorization of digital assets can vary, leading to potential discrepancies in treatment and compliance requirements. This inconsistency not only hampers regulatory clarity but also creates opportunities for those seeking to exploit regulatory loopholes. Additionally, the proposed rules present challenges in demonstrating exclusive control over digital assets, which can be problematic considering the nature of blockchain technology. Blockchain, the underlying technology behind many digital assets, is designed to be decentralized and eliminate the need for intermediaries. This inherent characteristic raises questions about how advisors can effectively demonstrate control over client assets stored in decentralized systems. Furthermore, the amendments to the Investment Adviser Recordkeeping Rule require advisors to maintain records related to digital assets. While recordkeeping is essential for investor protection and regulatory oversight, the specific requirements for digital assets should be carefully crafted to avoid unnecessary burdens that stifle innovation and hinder the adoption of new technologies. Given the rapidly evolving nature of digital assets, it is imperative that regulatory frameworks strike a delicate balance between investor protection and fostering technological innovation. The proposed rules do not appear to adequately address this balance, potentially stifling the growth of the digital asset industry and pushing innovators away from the United States. I urge the Securities and Exchange Commission to carefully reconsider the treatment of digital assets under the proposed rule. There is a need for greater clarity, consistency, and flexibility in regulating this burgeoning asset class. By fostering an environment that encourages responsible innovation and effective regulation, we can ensure the preservation of investor protections and the long-term growth of the digital asset industry. Thank you for considering my concerns. I believe that by working together, we can strike a balance that protects investors, encourages innovation, and establishes clear regulatory guidelines for digital assets. Sincerely, Nicholas D