Oct. 30, 2023
To Whom It May Concern, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" from the Securities and Exchange Commission (SEC), under the name D.B. Stewart. While I appreciate the SEC's intention to enhance investor protections and address gaps in the custody rule, I have several concerns that I believe need to be addressed in order to create an effective and practical regulatory framework. First and foremost, I would like to express my concerns regarding the inadequate consideration of the unique properties of cryptocurrency by the SEC. The proposed rule fails to take into account the decentralized nature and technological complexities of cryptocurrency. By treating digital assets like any other investment, the SEC risks imposing impractical regulatory requirements that do not align with the inherent characteristics of this emerging asset class. It is crucial for the SEC to engage extensively with industry experts to develop a nuanced approach that safeguards investor interests while promoting innovation within the digital asset space. Furthermore, I have reservations about the scope of the proposed rule. While I acknowledge the importance of expanding the coverage to include a broader range of investments held in a client's account, it is imperative to strike a balance that does not stifle investment opportunities unnecessarily. Certain alternative investments, such as venture capital and private equity funds, may require customized custody arrangements due to their unique characteristics. The SEC should consider providing flexibility and tailored approaches for such investments to ensure that investor protection is not compromised. In addition to the scope, I am concerned about the practicality of certain provisions within the proposed rule. For instance, the requirement for investment advisers to maintain exclusive control over client assets faces challenges when applied to digital assets. Given the inherent nature of blockchain technology, where control is distributed among multiple network participants, it becomes practically impossible to demonstrate exclusive control over digital assets. Imposing stringent control requirements without considering the decentralized nature of these assets may hinder the growth and development of the digital asset industry. Moreover, the proposed rule places an increased burden on investment advisers in terms of recordkeeping and compliance. While I understand the necessity of enhanced oversight, it is crucial to strike a balance that ensures appropriate levels of investor protection without disproportionately burdening advisers. The SEC should consider providing reasonable alternatives that achieve the desired regulatory objectives while minimizing the administrative burdens faced by investment advisers. Finally, I would like to commend the SEC for incorporating a transition period in the proposed rule. The complexities of implementing new requirements necessitate a transition phase to ensure a smooth and effective adoption by investment advisers. However, it is important to establish clear and realistic compliance dates, taking into account the varying sizes and resources of investment advisers. This will enable investment advisers, particularly smaller entities, to adequately prepare and implement the necessary changes without experiencing undue hardship. In conclusion, I urge the SEC to address the concerns mentioned above to create a regulatory framework that is both robust and practical in safeguarding advisory client assets. It is crucial to consider the unique properties of cryptocurrency, provide flexibility within the scope of the rule, ensure practicality in implementation, and strike a reasonable balance between investor protection and administrative burdens. I encourage the SEC to engage in ongoing dialogue with stakeholders to refine and improve the proposed rule for the benefit of investors and the digital asset industry as a whole. Thank you for considering my comments. I remain committed to supporting efforts that promote investor protection while fostering innovation within the financial markets. Sincerely, D.B. Stewart