Oct. 30, 2023
Dear Securities and Exchange Commission, I'm writing to offer my public feedback on the "Safeguarding Advisory Client Assets" proposed rule. I support the SEC's efforts to close loopholes in the custody rule and strengthen investor protections, but I have some reservations about the proposed rule and how it will affect investment advisers and their clients. One important point I want to draw attention to is how little the special characteristics of cryptocurrencies have been taken into account. The decentralized character of cryptocurrencies and their technological complexity are overlooked in the proposed rule, which makes the legal obligations for investment advisers unworkable and onerous. Since cryptocurrency runs on decentralized networks, custody of these assets might not follow traditional definitions of custody. Moreover, the excessively prescriptive approach to custodial management in the proposed rule may discourage innovation and impede the expansion of the bitcoin market. Furthermore, the proposed rule's emphasis on qualified custodian safeguards can unintentionally put up obstacles in the way of investment advisers' efforts to properly and safely preserve client assets, especially when it comes to new assets like cryptocurrencies. The law appears to ignore the changing world of digital assets, assuming that conventional custody arrangements will sufficiently handle all investment scenarios. In order to stimulate innovation and guarantee that investor safeguards are properly maintained, the SEC must modify its regulations to take into account the special characteristics of cryptocurrencies. In addition, I worry about the possible costs of complying with the new rule. Protection of investors must come first, but the law should also consider the financial impact on investment advisers, especially smaller businesses. According to the economic study, the cost of compliance is disproportionately high, particularly for smaller advisers. In order to make sure that compliance costs are fair, do not obstruct market competition, and do not disproportionately harm smaller investment advisers, I urge the SEC to carry out additional reviews. Furthermore, I think the requirement for the surprise examination should be more flexible. The proposed rule's broad application may be onerous for investment advisers who have a solid track record of preserving client assets, even though surprise checks are helpful in guaranteeing the appropriate safeguarding of client assets. Instead, the SEC could consider implementing a risk-based approach to surprise examinations, focusing resources on firms with a higher likelihood of non-compliance or specific risk factors. Finally, I request that the SEC reevaluate a few points in the proposed regulation "Safeguarding Advisory Client Assets" in order to guarantee a more sophisticated and well-rounded approach to investor protection. More thought should be given to the distinctive qualities of cryptocurrencies, awareness of the possible compliance obligations on investment advisers, and increased latitude in how the surprise examination requirement is applied. I appreciate your consideration of my remarks. I think the SEC may successfully improve the proposed rule to better protect client assets while also encouraging innovation and healthy market competition, provided it is carefully reviewed and revised.