Oct. 31, 2023
Thomas Joseph Irvine, CA October 30, 2023 Securities and Exchange Commission 100 F Street, NE Washington, DC 20549-1090 Subject: Public Comment on "Safeguarding Advisory Client Assets" Proposal (File No. S7–04–23) Dear Sir/Madam, I am writing to submit a public comment on the proposed rule "Safeguarding Advisory Client Assets" (File No. S7–04–23) issued by the Securities and Exchange Commission. As investors rely heavily on the expertise and trustworthiness of investment advisers, it is crucial to enhance safeguards and address any gaps in the custody rule. However, I believe that certain aspects of the proposed rule require further consideration and revision. One concerning issue pertains to the inadequate consideration given to the unique properties of cryptocurrency. The proposed rule fails to recognize the decentralized nature and technological complexities of cryptocurrency, resulting in impractical and burdensome regulatory requirements. It is crucial to address these complexities and tailor the rules accordingly to ensure effective investor protection without stifling innovation in the cryptocurrency space. Additionally, the SEC's proposed rule expands the coverage to include a broader range of investments held in a client's account, which is commendable. However, it is important to strike a balance between protecting client assets and avoiding undue compliance costs for investment advisers. As stated in [relevant prior law], the SEC should carefully evaluate the economic effects of the proposed rule and explore feasible alternatives that achieve the objective without imposing excessive burdens on industry participants. Moreover, the proposed amendments to the surprise examination requirement could be refined to better align with the realities of the investment advisory industry. While surprise examinations are undoubtedly an important tool for safeguarding client assets, the SEC should provide more clarity on the obligations of investment advisers who have discretionary authority over client assets. This would alleviate unnecessary burdens on those advisers who already have robust internal controls and compliance mechanisms in place. Furthermore, the proposed rule addresses how advisers can safeguard assets that cannot be maintained with a qualified custodian. While enhanced recordkeeping, separation of duties, and regular reviews are crucial, care must be taken to ensure that the compliance requirements are manageable for advisers of all sizes. The SEC should consider providing additional guidance or flexibility to accommodate the diverse range of advisory practices and business models in the industry. In conclusion, while I appreciate the SEC's efforts to enhance investor protections through the proposed rule "Safeguarding Advisory Client Assets," certain aspects of the rule require further refinement to ensure practicality, proportionality, and effectiveness. Specifically, I urge the SEC to consider the unique properties of cryptocurrency when formulating regulatory requirements, strike a balance between protecting client assets and minimizing compliance costs, and provide clearer guidance for advisers with discretionary authority. Additionally, flexibility and accommodation for various advisory practices should be a priority to prevent unintended consequences for small and diverse advisory firms. Once again, thank you for the opportunity to provide feedback on this important matter. I hope that my concerns, in addition to those of other stakeholders, will be considered carefully during the rulemaking process in order to achieve an optimal balance between investor protection and industry innovation. Sincerely, Thomas Joseph