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 the aim of enhancing investor protections and addressing gaps in custody rules is commendable, there are several issues within the proposal that need to be addressed to ensure clarity, consistency, and to prevent overreach of regulatory authority. Firstly, I would like to address the lack of clarity on compliance requirements for non-custodial services. The proposal fails to provide clear guidance on how investment advisers offering non-custodial services are expected to comply with the new rule. This creates uncertainty for market participants and could hinder innovation within the advisory industry. Furthermore, the proposed regulations surrounding decentralized finance (DeFi) present confusing compliance requirements. The proposal includes reporting obligations for multiple participants in DeFi, which could result in inconsistent and redundant reports for the same transaction. This not only burdens market participants with unnecessary administrative work but also fails to consider the unique characteristics of DeFi. Additionally, there are concerns regarding potential overreach of regulatory authority. While investor protection is paramount, it is important to strike a balance that allows for innovation and competition within the advisory industry. The proposed rule, as it stands, may inadvertently stifle entrepreneurial endeavors and impede the growth of emerging technologies. Moreover, the economic analysis provided in the proposal should consider the potential adverse effects on efficiency, competition, and capital formation. While the intentions behind the rule amendments are admirable, it is essential to thoroughly evaluate the potential costs and unintended consequences that may arise from its implementation. This includes the impact on advisory services, the cost of compliance for qualified custodians, and potential barriers to market entry for small entities. In particular, the proposed amendments could disproportionately affect small advisers. The burden of compliance costs and administrative requirements may present significant challenges for these entities, potentially reducing their competitiveness and ability to provide quality services to their clients. It is crucial to ensure that the proposed rule is appropriate for small advisers and that the associated costs and compliance burdens are carefully considered. In conclusion, while the objective of enhancing investor protections and addressing custody rule gaps is commendable, the proposed rule on "Safeguarding Advisory Client Assets" requires further clarification and refinement. I urge the Securities and Exchange Commission to consider the concerns raised regarding compliance requirements for non-custodial services, the confusing regulations surrounding DeFi, and the potential overreach of regulatory authority. Additionally, it is essential to thoroughly evaluate the economic impact and potential burdens on small advisers. Thank you for considering my comments. I believe that these concerns, if addressed, will contribute to the development of a more effective and balanced regulatory framework. Sincerely, Otto Schoorel