Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed "Safeguarding Advisory Client Assets" rule. While I understand the aim to enhance investor protections and address gaps in the custody rule, I believe there are aspects of the proposed rule that may exceed the SEC's regulatory authority, encroaching on areas that should be regulated by other agencies. One area of concern is the proposed rule's inclusion of digital assets or cryptocurrencies. It is undeniable that digital assets, built on blockchain technology, have transformative potential in the financial industry. However, the regulatory uncertainties surrounding these assets pose significant challenges. As the SEC continues to explore its regulatory role in the digital asset space, it is important to consider the expertise and oversight provided by other agencies, such as the Commodity Futures Trading Commission (CFTC). Coordinated efforts between regulatory bodies will ensure a comprehensive and coherent approach to regulating this evolving asset class. Furthermore, the SEC must take into account the practical challenges of demonstrating exclusive control over digital assets. The unique nature of blockchain technology, which relies on decentralized networks, makes it difficult to apply traditional custody principles. The proposed rule should be mindful of striking a balance between investor protections and the technological complexities of digital assets. Collaboration between the SEC and industry stakeholders, including technologists and experts in the field, is crucial to developing effective regulations that promote investor confidence while fostering innovation. Additionally, I have concerns about the potential unintended consequences of the proposed rule's recordkeeping and registration requirements. While I acknowledge the importance of robust oversight and investor protection, an overly burdensome regulatory framework could stifle competition, particularly for smaller investment advisers. It is crucial to strike a balance between ensuring transparency and accountability and allowing for innovation and entrepreneurial growth within the industry. I urge the SEC to carefully consider the economic impacts and compliance costs for investment advisers, particularly smaller entities. Moreover, the proposed rule's inclusion of disclosures regarding custodial account information may unnecessarily infringe on privacy rights. While transparency and disclosure are important, it is essential to find a balance that protects both investor interests and reasonable expectations of privacy. The SEC should carefully evaluate the necessity and potential impact of such disclosures, particularly in light of existing safeguards and consumer protections. In conclusion, I believe that while the SEC's proposed "Safeguarding Advisory Client Assets" rule has admirable objectives, certain aspects may exceed the agency's regulatory authority and warrant further consideration. The regulation of digital assets should involve close collaboration with other agencies, such as the CFTC, to ensure a comprehensive and coordinated approach. Furthermore, a balanced and flexible framework is essential to foster competition, protect investor interests, and promote innovation within the advisory industry. I appreciate the opportunity to provide input on this proposed rule and hope that my concerns will be taken into careful consideration. Thank you for your attention to this matter. Sincerely, Ch. H.