Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the "Safeguarding Advisory Client Assets" proposal. While I appreciate the effort to enhance investor protections and address gaps in the custody rule, there are several concerns that I would like to bring to your attention. Firstly, I am worried about the lack of industry expertise in drafting this proposal. It is evident that the SEC does not have sufficient understanding of digital assets and cryptocurrency, as the proposed rule fails to take into account their unique characteristics. Cryptocurrency operates on a decentralized network, and imposing blanket regulations on such assets without considering the technological complexities involved is impractical. It is crucial that regulators work in collaboration with industry experts to develop regulations that are effective and feasible. Another concern relates to the impact of these regulations abroad. The proposed reporting requirements for protocols run outside the US, as well as for users outside the US, are not adequately limited. This lack of clarity and specificity could create unnecessary compliance burdens for businesses operating internationally and deter innovation. It is essential to strike a balance between investor protection and the promotion of a global digital asset ecosystem. Additionally, the proposed rule does not sufficiently address the regulatory challenges posed by custodianship of cryptocurrency. The decentralized nature of cryptocurrency makes it difficult to demonstrate exclusive control, an issue that is not fully understood by the SEC. Blanket requirements for custody, such as obtaining reasonable assurances or segregating client assets, may not be applicable or practical for certain types of digital assets. The regulatory framework should consider the unique properties of cryptocurrency and develop nuanced rules that safeguard investor interests while promoting innovation and market development. In conclusion, I urge the SEC to reconsider certain aspects of the proposed rule. Collaborating with industry experts to gain a deeper understanding of the digital asset landscape and its unique challenges would be beneficial. A balanced approach that enhances investor protections without stifling innovation will contribute to a thriving digital asset industry. By carefully considering the concerns raised regarding industry expertise, impact abroad, and the nuanced nature of cryptocurrency assets, the SEC can strike the right balance between regulation and development. Thank you for considering my comments. Sincerely, Patrick Magrath