Oct. 30, 2023
Dear Sir/Madam, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" (File No. S7-02-19) by the Securities and Exchange Commission (SEC). While the rule aims to enhance investor protections and address gaps in the custody rule, I have several concerns regarding its scope and potential negative impact on investors, particularly in relation to the treatment of cryptocurrency. Firstly, I believe that the SEC's proposed rule does not adequately consider the unique properties of cryptocurrency. The decentralized nature and technological complexities of cryptocurrency make it fundamentally different from traditional assets. Imposing the same regulatory requirements for cryptocurrency as those applied to traditional assets is impractical and can hinder the growth and innovation of this emerging industry. Furthermore, the SEC's approach fails to recognize the importance of striking a balance between investor protection and fostering technological advancements. While safeguarding client assets is indeed crucial, it is equally important not to stifle innovation and deter potential investment opportunities that can benefit individual investors. Taking a one-size-fits-all approach to regulation disregards the intricacies of cryptocurrency and ignores its potential to transform the financial landscape. In addition to my concerns regarding cryptocurrency, I believe it is necessary to highlight the broader impact of the SEC's regulatory proposals. The proposed rule introduces new compliance requirements and costs for investment advisers, potentially burdening smaller entities that may not have the resources to absorb such expenses. The economic analysis provided by the SEC acknowledges the compliance costs but fails to adequately consider the potential negative impact on small advisers, which may result in unintended consequences, including reduced competition and advisory services. Moreover, the proposed rule places significant emphasis on custodial arrangements, often disregarding the robust internal controls and protocols already in place to safeguard client assets. While safeguarding client assets is of paramount importance, it is essential to recognize that ensuring investor protection should not solely rely on custodial arrangements. Many investment advisers have already implemented robust internal controls, segregation of client assets, and regular reviews to safeguard investor funds. Therefore, the proposed rule, as presented, runs the risk of unnecessary duplication and burdensome requirements that do not necessarily enhance investor protections. Furthermore, the proposed rule's disclosure requirements, particularly the investment adviser's delivery of notice to clients when opening an account with a custodian, pose potential privacy and security concerns. Requiring the disclosure of custodian information and custodial account numbers raises serious questions regarding the privacy and confidentiality of client information. The SEC should ensure that any disclosure requirements strike an appropriate balance between investor protection and the confidentiality of sensitive financial information. In conclusion, I urge the SEC to reconsider the approach taken in its proposed rule "Safeguarding Advisory Client Assets." Specifically, the SEC must take into account the unique properties of cryptocurrency when crafting regulatory requirements to avoid any unintended consequences that could stifle innovation and harm individual investors. Furthermore, the SEC should carefully consider the potential negative impact on smaller entities and the duplication of existing internal control measures. Finally, privacy and security concerns surrounding the proposed disclosure requirements must be addressed to ensure the confidentiality of client information. Thank you for considering my public comment on this matter. I appreciate the opportunity to contribute to the regulatory process. Sincerely, Jeff Rosen