Oct. 30, 2023
Subject: S7–04–23 From: M O'Drizzy Affiliation: Oct. 30, 2023 Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets". While I appreciate the effort to enhance investor protections and address gaps in the custody rule, I believe there are several key issues that need to be addressed. In particular, my concerns pertain to the scope of the rule, the treatment of digital assets, and the regulatory harmonization with international standards. Firstly, the proposed rule expands the coverage to include a broader range of investments held in a client's account. While this may seem beneficial, it raises questions about the practicality and feasibility of implementing and enforcing such a rule. By attempting to include all assets, there is a risk of creating cumbersome and burdensome regulatory requirements that may hinder compliance and increase costs for investment advisers. Furthermore, the rule aims to address the treatment of digital assets or cryptocurrencies, which have revolutionized the financial industry through blockchain technology. However, the proposal falls short in aligning with international regulatory standards for digital assets. This inconsistency can result in regulatory fragmentation and impede cross-border transactions, limiting the potential growth and development of the digital asset market. It is essential that the Securities and Exchange Commission takes into account global regulatory standards and works towards harmonization to ensure a level playing field for market participants. By disregarding international standards, the proposed rule may potentially hinder the ability of investment advisers to engage in global business activities and limit the market's competitiveness. In addition, there is a need for a nuanced approach when addressing digital assets. While it is crucial to protect investors from potential risks associated with digital assets, it is equally important to foster innovation and support the growth of this emerging asset class. The proposed rule should provide clear and comprehensive guidance on the treatment of digital assets to ensure a fair and balanced regulatory framework. Moreover, the economic analysis provided by the Securities and Exchange Commission acknowledges the challenge of estimating economic effects due to varying practices among investment advisers. As such, it is imperative that the SEC conducts a thorough and comprehensive assessment of the costs and benefits associated with the proposed rule. This includes weighing the impact on efficiency, competition, and capital formation. To enhance transparency and regulatory oversight, the proposed amendments to Form ADV should be carefully evaluated to strike the right balance between information requirements and compliance costs. It is essential that the SEC considers reasonable alternatives and engages in meaningful dialogue with market participants to ensure that the rule achieves its intended goals without unduly burdening investment advisers. Furthermore, the proposed rule and related amendments impose compliance, reporting, and recordkeeping requirements on investment advisers. While I understand the need for enhanced safeguards and investor protections, it is crucial to consider the impact on small entities. The rule should take into account the unique challenges faced by small advisers to avoid imposing disproportionate burdens on them. In conclusion, I urge the Securities and Exchange Commission to address the concerns raised regarding the proposed rule on "Safeguarding Advisory Client Assets". International regulatory standards, particularly concerning digital assets, should be carefully considered to prevent regulatory fragmentation. Additionally, a thorough economic analysis should be conducted to assess the costs, benefits, and potential impacts on efficiency, competition, and capital formation. By incorporating feedback from market participants and taking a balanced approach, the SEC can ensure that the final rule achieves its intended goals while fostering innovation and protecting investors. Thank you for considering my comments on this important proposal. Sincerely, M O drizzy