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 intentions behind this rule to enhance investor protections and address gaps in the current custody rule, I believe there are several areas that require further consideration and refinement. Firstly, I would like to draw attention to the scope of the rule, especially in relation to digital assets or cryptocurrencies. As these assets continue to gain prominence in the financial industry, it is crucial to establish consistent regulatory treatment for utility tokens. The absence of clear guidelines may lead to confusion and potentially create opportunities for regulatory arbitrage. I urge the SEC to provide greater clarity and guidance regarding the regulatory treatment of utility tokens to ensure a level playing field for all market participants. Furthermore, I have concerns regarding the SEC's understanding of digital assets. The rapid pace of technological advancements in the blockchain space poses unique challenges when it comes to safeguarding client assets. It is essential for regulatory authorities to possess a comprehensive understanding of these assets and their underlying technology to effectively address investor protections. I encourage the SEC to invest in education and foster a working relationship with industry experts to stay ahead of these developments. Additionally, the Economic Analysis presented in the proposal acknowledges the benefits of the rule in reducing asset loss risk but minimizes the potential compliance costs for investment advisers. Given the diverse practices among investment advisers, it is important to carefully evaluate the impact of compliance costs on smaller entities. Striking a balance between investor protections and the burden imposed on advisers, particularly those with limited resources, is crucial to maintain a thriving advisory industry. Moreover, the proposed changes to the surprise examination requirement raise concerns regarding its applicability to advisers with discretionary authority over client assets and those with custody solely due to standing letters of authorization (SLOA). The exceptions provided may inadvertently undermine the intended investor protections. I encourage the SEC to reassess these exceptions to ensure that client assets are consistently safeguarded across different scenarios. Furthermore, the proposed changes to Rule 204-2, related to investment adviser recordkeeping, may lead to a significant administrative burden for advisers. It is essential to strike a balance between the need for enhanced oversight and the practical challenges faced by investment advisers in maintaining extensive records. I urge the SEC to carefully consider the necessity of each proposed requirement and ensure that it does not unnecessarily burden advisers without significant benefits to investors. In conclusion, while I applaud the SEC's efforts to enhance investor protections through the proposed rule on "Safeguarding Advisory Client Assets," there are certain aspects that require further consideration and refinement. Resolving the inconsistencies in regulatory treatment of utility tokens, improving the SEC's understanding of digital assets, and carefully evaluating the impact of compliance costs on investment advisers, particularly smaller entities, are essential to create a comprehensive and effective regulatory framework. Thank you for the opportunity to provide my input on this important matter. Sincerely, Aryan Begum