Oct. 31, 2023
Dear Securities and Exchange Commission, I am writing this public comment in response to the proposed rule for safeguarding advisory client assets. While I understand the importance of enhancing investor protections and addressing gaps in the custody rule, I have several concerns regarding the rule proposals: Scope of Rule: The proposed expansion of coverage to include a broader range of investments held in a client's account raises concerns. While it is important to protect investors, the definition of assets and the inclusion of discretionary authority in custody should be carefully examined to avoid unnecessary burdens on investment advisers. Qualified Custodian Protections: The rule addresses the application of safeguarding client assets, particularly in the context of digital assets or cryptocurrencies. While acknowledging the challenges in proving exclusive control, it is crucial that the rule provides clear guidelines and requirements to ensure the secure custody of these assets. Segregation of Client Assets: The rule rightly emphasizes the need to segregate client assets from adviser assets to protect investor interests. However, it is important to ensure that exceptions to this requirement are limited and carefully defined to avoid potential abuses or mishandling of client assets. Amendments to the Surprise Examination Requirement: The proposed changes to the surprise examination requirement are commendable as they help safeguard client assets and reduce the risk of loss. However, it is crucial to strike a balance between effective oversight and not overly burdening investment advisers with unnecessary costs and additional paperwork. Economic Analysis: While the proposed rule aims to enhance investor protections, it is essential to carefully consider the economic impacts and costs associated with compliance. Investment advisers operate in a diverse landscape, and the rule should not unintentionally impede competition or hinder capital formation. Digital Assets or Crypto: The proposed rule acknowledges the challenges posed by digital assets or cryptocurrencies and their custody. It is crucial to provide clear guidance and address the regulatory uncertainties surrounding these assets to ensure a level playing field for investment advisers while still protecting investors. With these concerns in mind, I urge the Securities and Exchange Commission to carefully review the proposed rule from the perspectives of both investor protection and industry viability. Clear guidelines and practical solutions should be provided to safeguard advisory client assets without unduly burdening investment advisers. Furthermore, as the regulatory landscape for digital assets continues to evolve, I encourage the SEC to work towards harmonizing regulations to ensure clarity and consistency across the industry. Thank you for considering these concerns as part of the public comment process. I appreciate your commitment to protecting investor interests and maintaining a fair and efficient market. Sincerely, Sheela Gustafson