Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets" from the Securities and Exchange Commission (SEC). While I recognize the importance of enhancing investor protections and addressing gaps in the custody rule, I have concerns regarding the adequacy of the proposal's consideration of smart contracts and digital assets. These areas require further examination to ensure effective regulatory oversight without stifling innovation. Firstly, the proposal does not adequately address the unique characteristics of smart contracts. Smart contracts, which are self-executing contracts with the terms of the agreement directly written into code, have gained significant traction, particularly in the realm of digital assets and cryptocurrencies. However, the proposal does not outline a clear framework for dealing with the regulatory challenges and potential legal uncertainties presented by smart contracts. This omission may hinder the SEC's ability to effectively oversee these emerging technologies and provide clarity to market participants. Furthermore, the proposal's treatment of digital assets, such as cryptocurrencies, is a matter of concern. Digital assets, built on blockchain technology, have a transformative effect on the financial industry and offer innovative solutions in areas such as cross-border transactions and decentralized finance. However, regulatory uncertainties surrounding these assets have created challenges for market participants, hindering their ability to fully develop and utilize these technologies. The proposal should provide more comprehensive guidance on the regulation of digital assets, striking a balance between protecting investors and encouraging innovation. In assessing the potential impact of the proposal, it is crucial to consider the implications for innovation within the financial sector. Overly burdensome regulation can stifle innovation, discouraging investment and impeding progress. The SEC should be cautious not to create regulatory barriers that restrict technological advancements, particularly in rapidly evolving fields such as digital assets and smart contracts. By embracing a balanced, risk-based approach, the SEC can foster a conducive regulatory environment that encourages responsible innovation while still safeguarding investor interests. In conclusion, while I recognize the SEC's efforts to strengthen investor protections and address gaps in the custody rule, I urge you to thoroughly consider the unique challenges posed by smart contracts and digital assets. It is essential to strike a balance between regulation and innovation, ensuring that the proposal's requirements do not inadvertently impede the development and utilization of transformative technologies. By incorporating robust and appropriate guidance on these topics, the SEC can promote a more forward-thinking regulatory framework that facilitates both investor protection and technological progress. Thank you for considering my comments on this important matter. Sincerely, Laurits Kalu?a