Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I appreciate the SEC's aim to enhance investor protections and address gaps in the custody rule, I believe there are certain aspects of the rule that may exceed the SEC's regulatory authority and encroach on areas that should be regulated by other agencies. One area of concern is the treatment of digital assets, particularly cryptocurrencies, in the proposed rule. Digital assets, such as cryptocurrencies, are products of innovative technology and have transformed the finance industry. I believe it is important to recognize and distinguish their unique characteristics from traditional securities. I believe digital assets should not be treated as securities and should not be subject to the same regulatory framework. The SEC's proposal to include digital assets in the scope of the rule raises regulatory uncertainties and potential burdens for investment advisers and custodians dealing with these assets. It may deter innovation and hinder the growth of this emerging sector. Instead of subjecting digital assets to the existing custody rule, I suggest that the SEC work collaboratively with other regulatory bodies, such as the Commodity Futures Trading Commission, to develop a comprehensive and tailored regulatory framework specifically designed for digital assets. This would allow for the appropriate oversight and protection of investors while fostering innovation within the industry. Furthermore, I believe it is important for the SEC to carefully consider the potential economic impact of the proposed rule. While the rule aims to enhance investor protections, it is crucial to balance these objectives with the potential costs borne by investment advisers, especially small entities. The compliance costs associated with the proposed rule could potentially have a disproportionate impact on smaller advisers, hindering competition and stifling economic growth. In conclusion, I urge the SEC to reassess the treatment of digital assets in the proposed rule and to consider developing a separate regulatory framework specifically tailored for this innovative industry. I also encourage the SEC to carefully consider the economic impact and potential burdens imposed by the rule, especially on smaller entities. By striking a balance between investor protection and regulatory efficiency, we can foster a vibrant and innovative advisory industry. Thank you for considering my concerns and for providing the opportunity to offer this public comment. Sincerely, James