Oct. 31, 2023
Daniel McHugh [REDACTED] 10/30/2023 Securities and Exchange Commission 100 F Street NE Washington, DC 20549-1090 Subject: Proposed Rule: Safeguarding Advisory Client Assets Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" (File No. S7-31-21). I understand that the Securities and Exchange Commission (SEC) aims to enhance investor protections and address gaps in the custody rule through this proposed rule. While I appreciate the goals of the SEC, I have concerns regarding the lack of clarity on the definition and treatment of digital assets, which can create confusion and potential misinterpretation. The proposed rule mentions the inclusion of digital assets under the definition of client assets, indicating a step toward recognizing the significance of these assets in contemporary finance. However, I believe the proposal falls short in providing clear guidance on what constitutes a digital asset. Given the rapidly evolving landscape of digital assets, such as cryptocurrencies built on blockchain technology, it is essential to provide comprehensive and unambiguous definitions to ensure regulatory compliance and clarity in the industry. I am particularly concerned that the current laws, based on frameworks established in 1932 and the Howey test, do not appropriately apply to emerging technologies like smart contracts within subsets such as Hex, Pulsechain, and Pulsex. These technologies present unique features and complexities that demand a more nuanced and tailored regulatory approach. It is crucial for the SEC to acknowledge the transformative potential of digital assets and provide clear regulatory frameworks that encourage innovation while safeguarding investor interests. I urge the SEC to engage stakeholders, including industry experts and participants, to develop comprehensive definitions, guidelines, and regulatory frameworks specific to different digital assets and their underlying technologies. Moreover, it is essential to strike a balance between investor protections and stifling innovation. Excessive regulatory ambiguity surrounding digital assets can hamper entrepreneurship and investment in the sector, potentially sidelining the United States in the global financial market. By fostering an environment that encourages responsible innovation and facilitates compliance, the SEC can demonstrate its commitment to maintaining the competitiveness and prominence of the US financial market. In conclusion, while I support the SEC's efforts to enhance investor protections and address gaps in the custody rule, I emphasize the importance of clarity and specificity when it comes to the treatment of digital assets. I urge the SEC to collaborate with industry experts and stakeholders to develop comprehensive definitions and tailored regulatory frameworks aligned with the unique characteristics of digital assets, ultimately fostering innovation and safeguarding investor interests. Thank you for considering my comments. I appreciate the opportunity to contribute my perspective on this important matter. Sincerely, Daniel McHugh