Oct. 30, 2023
Public Comment on Safeguarding Advisory Client Assets Proposal I. Introduction: I, Michel, am submitting this public comment to express my concerns regarding the Securities and Exchange Commission's proposal on "Safeguarding Advisory Client Assets." While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I believe that certain aspects of the proposal require further consideration and revision to ensure the privacy and safety of investors. II. Discussion: A. Absence of Regulatory Clarity for Security Tokens: One of the main concerns with the proposal is the absence of clear regulatory guidelines for security tokens. As the crypto market continues to grow, it is essential to provide investors with regulatory certainty, especially when it comes to safeguarding their assets. Without clear guidelines, investors may face uncertainty and potential risks when investing in security tokens. Therefore, I strongly encourage the SEC to provide specific and comprehensive regulations for security tokens to ensure investor protection while fostering innovation in the market. B. Privacy and Safety Concerns: In today's era of data breaches and cybercrime, privacy provisions are of paramount importance. I am concerned about the proposal's requirement for investment advisers to share extensive client information, including sensitive financial data and social security numbers, with multiple third parties. This raises significant privacy and safety concerns, as increased exposure of personal data heightens the risk of identity theft and fraudulent activities. It is crucial to strike a balance between compliance and safeguarding investor data to ensure their privacy and security are not compromised. III. Economic Analysis: A. Baseline: The proposal recognizes the importance of safeguarding investor assets, as investment advisers reported custody of client assets worth $45.56 trillion. This underscores the need for robust protective measures considering the significant value and impact these assets have on the market. B. Benefits and Costs of Proposed Rule: While the proposed rule aims to enhance investor protections by reducing asset loss risk, I believe it is crucial to consider the potential costs incurred by advisers. The magnitude of compliance costs will largely depend on current custodial practices and existing controls. Sufficient cost-benefit analysis is necessary to strike the right balance that ensures investor protection while minimizing the burdens imposed on advisers. IV. Paperwork Reduction Act Analysis: B. Rule 223-1: The proposed rule adds collection of information requirements, resulting in a cost burden of $12,203,756. While it is imperative to collect relevant data to effectively supervise custodians and ensure investor protection, the SEC should aim to minimize the costs associated with compliance. G. Request for Comments: I encourage the SEC to seek public input on the necessity, accuracy, quality, and burden of the proposed collections of information. Engaging in a dialogue with the public will help identify any potential inefficiencies or overlooked benefits or costs that could be addressed in the final rule. V. Initial Regulatory Flexibility Analysis: B. Legal Basis: As the proposed rules are based on the legal authority provided by various sections of the Advisers Act, it is crucial to ensure that the regulations align with the intended goal of enhancing investor protections. C. Small Entities Subject to the Rule and Rule Amendments: While most small advisers registered with state authorities may not be affected, it is essential to consider the impact on the 321 SEC-registered advisers who have custody of client assets. Striking the right balance is necessary to safeguard investors without impeding the growth and competition of small entities. G. Solicitation of Comments: I strongly appeal to the SEC to actively solicit comments on the potential impact of the proposed rule on small entities. Their insights and concerns deserve careful consideration during the rulemaking process. VI. Consideration of Impact on the Economy: The proposed rule and amendments have the potential to enhance investor protections and SEC oversight in the advisory industry, thereby promoting market confidence and stability. It is crucial to evaluate the overall impact on the economy to ensure that the proposed changes strike the appropriate balance for sustainable and efficient growth. VII. Statutory Authority: The SEC's proposed rule, along with the amendments and Form ADV changes, rest on the foundation of the statutory authority granted by relevant sections of the Advisers Act. The utilization of this authority must align with the overarching goal of enhancing investor protections and promoting market integrity. In conclusion, I urge the SEC to consider the concerns raised regarding the absence of regulatory clarity for security tokens and the potential privacy and safety risks associated with sharing sensitive financial data. By addressing these concerns, the SEC can further strengthen investor protections while fostering a favorable environment for investment and innovation. Thank you for your attention to these critical issues. Sincerely, Michel