Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to provide my comments on the proposed rule "Safeguarding Advisory Client Assets." While I acknowledge the intention behind this rule to enhance investor protections and address gaps in the custody rule, I have concerns regarding the lack of clarity on the definition of digital assets and its implications for the rapidly evolving landscape of cryptocurrency. The proposal states the aim to expand the coverage of the rule to include a broader range of investments held in a client's account, which is commendable. However, the definition of digital assets remains unclear. In the transformative world of cryptocurrencies, where decentralized platforms like HEX, PulseChain, and PulseX operate through smart contracts, there is a need for specific guidance on how these assets fit within existing securities regulations. My concern lies in the fact that the laws currently in place, such as those enacted in 1932 and the Howey test, may not be applicable or suitable when addressing the unique characteristics of these blockchain-based assets. The cryptographic nature of digital assets and the automated execution of smart contracts present novel challenges that demand a nuanced perspective. In order to effectively regulate and safeguard digital assets, it is imperative that the SEC provides clear and specific guidelines that address the technological complexities unique to cryptocurrencies. Failing to do so could lead to ambiguity and potential misinterpretation, which may impede innovation and hinder the growth of this increasingly important sector. Moreover, I strongly encourage the SEC to engage in an open dialogue with industry experts, technologists, and stakeholders to better understand the intricacies of blockchain technology and its applications. Collaboration and knowledge sharing are essential to ensure regulatory frameworks are effective, well-informed, and capable of adapting to the ever-changing digital landscape. As the proposal acknowledges, the estimated cost burden for compliance with these new rules is significant. It is essential to strike a balance between investor protections and the costs incurred by investment advisers. The SEC should carefully consider potential unintended consequences, such as the potential increase in compliance costs for qualified custodians, which could adversely impact competition and capital formation. Furthermore, the proposed amendments to the surprise examination requirement are commendable as they contribute to the overall safeguarding of client assets. However, exemptions should be granted where appropriate for advisers with discretionary authority over client assets and those with custody solely due to a standing letter of authorization. In conclusion, while I appreciate the SEC's efforts to address the safeguarding of advisory client assets, it is crucial to provide clear guidance on the treatment of digital assets within the proposed rule. The SEC should recognize the unique characteristics of blockchain-based assets and ensure that regulations do not stifle innovation but instead enable investors to take full advantage of the potential benefits offered by cryptocurrencies. Thank you for considering my comments on this important matter. Sincerely, Anonymous