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 efforts to enhance investor protections and address gaps in the custody rule, there are several issues that merit further consideration. One area of concern is the inadequate consideration of the unique properties of cryptocurrency. The proposed rule fails to acknowledge the decentralized nature and technological complexities of digital assets. By treating cryptocurrency as traditional custodial assets, the SEC risks implementing impractical regulatory requirements that do not align with the nature of these assets. Additionally, the rule suffers from poorly defined terms. The use of undefined terms such as "platform," "software," and "ledger" leaves room for multiple interpretations, making compliance challenging for investment advisers. Furthermore, the definitions provided for terms like "wallet" and "validator" do not align with their technical meaning, leading to confusion and potential misinterpretation of the rules. I urge the SEC to reconsider the inclusion of these vague and undefined terms in the final rule. Providing clear and precise definitions will help facilitate compliance and ensure that investment advisers can implement appropriate safeguards for their clients' assets. Furthermore, the proposed amendments fail to address the potential burden placed on investment advisers in maintaining client assets that cannot be maintained with a qualified custodian. While the enhanced recordkeeping requirements and separation of duties are important steps, more guidance is needed on how advisers can effectively safeguard these assets. Clear guidelines with specific examples would alleviate compliance challenges and reduce the risk of asset loss. Moreover, the proposed rule broadly expands the scope of assets covered, including discretionary authority in custody. While it is essential to protect client assets, a more nuanced approach is necessary to avoid unnecessary burdens and costs. Balancing the regulatory objectives with the practicalities of investment advisory services is crucial to ensure that the rule achieves its intended goals without stifling innovation and hindering the ability of advisers to serve their clients effectively. In addition to these concerns, I would like to offer my assistance in crafting any public comments on other areas of the proposed rule that the SEC may find valuable. I have a strong understanding of the investment adviser industry and can provide insights and suggestions on various aspects of the rule. Furthermore, I would like to take this opportunity to ask if there are any general questions regarding the proposed rule that I can help address. I have thoroughly reviewed the proposal and can provide clarifications or additional information as needed. In conclusion, while the proposed rule on Safeguarding Advisory Client Assets aims to enhance investor protections, there are several areas of concern that need to be addressed. The inadequate consideration of the unique properties of cryptocurrency, poorly defined terms, and challenges in safeguarding certain assets with qualified custodians warrant further attention. I appreciate the opportunity to provide this public comment and urge the SEC to carefully review these concerns in order to create a well-balanced and effective rule. Thank you for considering my comments. Sincerely, Phil