Oct. 30, 2023
Dear Sir/Madam, I am writing to provide a public comment on the proposed rulemaking regarding the safeguarding of advisory client assets, as described under File No. S7-12-23. I greatly appreciate the Securities and Exchange Commission's (SEC) commitment to enhancing investor protections and addressing the gaps in the current custody rule. However, I have some concerns and suggestions with respect to the proposed regulations that I believe warrant careful consideration. First, I would like to raise a point regarding the treatment of different types of digital assets in the proposed rules. It appears that the rules treat these assets inconsistently, creating confusion and the potential for regulatory arbitrage. To ensure regulatory clarity and a level playing field, I recommend the SEC establish clear definitions and guidelines for different types of digital assets. This would help investment advisers and custodians understand their obligations when safeguarding these assets and ensure that investors are adequately protected. Additionally, as the SEC moves forward with the proposed rule, I urge you to consider the impact on small entities, particularly small advisers registered with state authorities. While it is commendable that most small advisers will not be affected by the proposed rule, it is important to carefully examine the compliance requirements and potential costs for the small number of SEC-registered advisers that do have custody of client assets. To alleviate any potential burden on these small advisers, it may be beneficial to provide additional clarification or simplification of the rules. This would help ensure that the proposed regulations are not disproportionately burdensome for smaller market participants, while still maintaining the investor protections that the SEC aims to achieve. Finally, I would like to commend the SEC on the thorough economic analysis carried out in relation to the proposed rule. The qualitative and quantitative assessments provided valuable insights into the potential benefits and costs associated with the regulatory changes. However, I would like to emphasize the importance of ongoing review and evaluation of the economic effects, particularly in light of evolving market practices and technologies. Given the fast pace of digital asset innovation and market dynamics, it would be prudent for the SEC to remain vigilant in monitoring the effectiveness and efficiency of the proposed rules. This will enable the SEC to adapt and respond to new challenges and opportunities that may arise in the future. In conclusion, I wholeheartedly appreciate the SEC's dedication to investor protection and its endeavors to enhance the safeguarding of advisory client assets. However, it is essential to address the concerns I have raised to ensure a fair and robust regulatory framework that promotes innovation while providing sufficient protections for investors. Thank you for considering my comments. I trust that the SEC will carefully review all public comments and make the necessary adjustments to ensure that the proposed rule effectively achieves its intended objectives. Should you require any further information or clarification, please do not hesitate to contact me. Sincerely, Nathan