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 appreciate the intention to enhance investor protections and address gaps in the custody rule, I am troubled by several aspects of the proposal. First and foremost, it is evident that the Securities and Exchange Commission (SEC) lacks sufficient expertise in digital assets and cryptocurrency. This raises concerns about the SEC's ability to truly understand the unique characteristics of these emerging technologies and their implications on investor protections. Without a deep understanding of the industry, there is a risk that the proposed regulations may not effectively address the challenges posed by digital assets and cryptocurrencies, leading to unintended consequences. Additionally, I am concerned about the impact of the proposed regulations on the international community. The rules currently lack sufficient limitations on reporting requirements for protocols run outside the United States and for users outside the United States. This could potentially create hurdles for international businesses and hinder the growth of the digital asset ecosystem. It is critical that the SEC considers the global nature of these technologies and works collaboratively with international regulators to develop a cohesive approach that fosters innovation while ensuring investor protections. Furthermore, the burdensome compliance costs associated with the proposed rule amendments raise concerns about the potential impact on advisory firms, particularly small entities. The cost burden estimates provided in the economic analysis suggest a significant financial strain for investment advisers, especially those operating on a smaller scale. It is essential to carefully evaluate the potential undue burden these regulations may impose on smaller firms and seek ways to address this issue without compromising investor protections. Moreover, I urge the SEC to consider implementing more nuanced approaches in certain areas of the proposed rule. For example, the inclusion of exceptions for certain assets that cannot be maintained with a qualified custodian is a step in the right direction. However, it is crucial to ensure that these exceptions do not create new loopholes or diminish the overall effectiveness of the regulation. A balanced and comprehensive approach is necessary to strike the right balance between investor protections and the practicalities of safeguarding client assets. Lastly, I commend the SEC's efforts to seek public input and conduct an economic analysis of the proposed rule. However, I urge the SEC to give due consideration to the feedback from industry experts, market participants, and international stakeholders who possess essential insights into the specific dynamics of the digital asset and cryptocurrency ecosystem. Their contributions can play a vital role in refining the proposed regulations to better align with the realities and nuances of this rapidly evolving industry. In conclusion, as the SEC moves forward with the "Safeguarding Advisory Client Assets" rule, I respectfully request that the agency critically evaluates the concerns highlighted in this public comment. By harnessing the expertise of industry participants, considering the global impact, and carefully balancing investor protections with practical implementation, the SEC has an opportunity to foster innovation, enhance investor confidence, and maintain the integrity of the financial markets. Thank you for your attention to these concerns. Sincerely, Ossi Wallwork