Oct. 31, 2023
[Candice Stone] [USA] ] [10/30/23] Vanessa A. Countryman Secretary U.S. Securities and Exchange Commission [SEC Address] [City, State, ZIP Code] Re: Rebuttal and Comments on Proposed Rule 17 CFR 275.223–1 - Safeguarding Advisory Client Assets Dear Ms. Countryman, I am writing to express my concerns and provide comments regarding the proposed rule 17 CFR 275.223–1, known as the "safeguarding rule," recently put forth by the U.S. Securities and Exchange Commission (SEC). While I recognize the SEC's commitment to safeguarding client assets and enhancing investor protections, I believe that certain aspects of the proposed rule require careful reconsideration, particularly in the context of cryptocurrencies. Firstly, it is essential to acknowledge the innovative potential that cryptocurrencies and blockchain technology offer in the realm of safeguarding client assets. These technologies provide new and promising ways to enhance transparency and security. It is crucial that the proposed rule accommodates these innovations rather than stifling their growth. Secondly, the global nature of cryptocurrencies should be taken into account. Requiring non-U.S. clients to adhere to U.S. Generally Accepted Accounting Principles (GAAP) and reconcile any differences could create undue burdens for international clients. I propose that the rule should allow flexibility in accounting standards to accommodate the various international standards in use. Additionally, the requirement for advisers and auditors to enter into written agreements that include provisions for notifying the SEC in the event of termination or modified opinions may deter auditors from working with cryptocurrency-related entities. Striking a balance between transparency and regulatory burden is essential to foster innovation and investor protection within the cryptocurrency sector. Moreover, the interconnectedness of the proposed safeguarding rule with the private fund adviser audit rule places an additional compliance burden on cryptocurrency-related advisers. This connection could potentially hinder the growth of the cryptocurrency industry and discourage investment in private funds related to this sector. I would like to commend the SEC for extending the comment period for Release No. IA–6240 Safeguarding Advisory Client Assets, which demonstrates a willingness to engage with industry stakeholders. I encourage the SEC to work closely with cryptocurrency industry experts, businesses, and investors to craft regulations that protect investors while nurturing innovation in the cryptocurrency market. In conclusion, I appreciate the SEC's efforts to safeguard client assets and enhance investor protections. However, I strongly urge the SEC to consider the unique characteristics of cryptocurrencies and blockchain technology when finalizing the proposed safeguarding rule. I believe that by working collaboratively with industry experts and stakeholders, the SEC can create a regulatory framework that both protects investors and supports the continued growth and development of the cryptocurrency industry. Thank you for your attention to this matter. I look forward to seeing how the SEC will address these concerns and create a regulatory environment that fosters innovation while ensuring investor protection. Sincerely, Candice Stone