Oct. 31, 2023
Re: Safeguarding Advisory Client Assets, File No. Dear Securities and Exchange Commission, I am writing to provide my professional perspective on the proposed rule "Safeguarding Advisory Client Assets." As an accountant and business lawyer with experience in the financial industry, I have concerns about certain aspects of the proposed rule and their potential impact on small businesses and startups, as well as the overall competitiveness of the digital asset industry. Firstly, while I understand the need for enhanced investor protections and the goal of addressing gaps in the custody rule, it is crucial to carefully consider the extraterritorial application of the proposed regulations. The digital asset market operates on a global scale, and excessive reporting requirements for protocols operating outside the United States and users located abroad may hinder international commerce and impede the growth of the industry. Striking the right balance between regulatory oversight and fostering cross-border innovation and growth is essential. Secondly, I would like to emphasize the potential burden placed on small entities, particularly startups, by the proposed rules. The digital asset industry is characterized by innovation and a rapidly evolving landscape, making it imperative to consider the unique challenges faced by small businesses. The complex reporting requirements and compliance costs associated with the proposed regulations may present a significant barrier to entry and stifle competition. This could ultimately limit the availability of innovative services and solutions, thus having a detrimental effect on investors. Furthermore, it is essential to consider the impact of the proposed rule on capital formation. By imposing substantial compliance costs on investment advisers and qualified custodians, there is a risk of diverting resources away from investment and capital formation activities. Small businesses and startups, in particular, may find it challenging to allocate sufficient capital towards growth and innovation if a significant portion is dedicated to compliance. It is crucial to strike the right balance between investor protections and regulatory requirements that facilitate capital formation and entrepreneurial activity. In conclusion, while the goal of enhancing investor protections and addressing gaps in the custody rule is commendable, it is crucial to consider the potential unintended consequences of the proposed rule. As a professional in the financial industry, I urge the Securities and Exchange Commission to carefully evaluate the burden imposed on small businesses and startups, as well as the potential impact on international commerce. By striking a balance between regulatory oversight and fostering innovation and growth, we can achieve effective investor protection while ensuring a competitive and vibrant digital asset industry. Thank you for considering my comments. I appreciate the opportunity to provide my professional perspective and contribute to the rulemaking process. If you require any additional information or would like to discuss my concerns further, please do not hesitate to contact me. Sincerely, Nathan Espinosa Additional comment: I am writing to respectfully submit my public comment on the proposed rule on Safeguarding Advisory Client Assets. I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule. However, I have several concerns regarding the proposed rule that I believe warrant further consideration and clarification. One of my concerns lies in the insufficient consideration of multi-signature wallets for custody of digital assets. These wallets provide an additional layer of security by requiring multiple parties' approval for transactions to be executed. They have gained widespread adoption and are deemed essential in safeguarding digital assets. Unfortunately, the proposed rules do not adequately consider the use of multi-signature wallets and their potential benefits. Given the increasing prevalence of digital assets, it is crucial for the SEC to recognize and account for these industry practices. Moreover, one of the significant issues I have identified in the proposed rule is the presence of poorly defined terms. The use of undefined terms such as "platform," "software," and "ledger" leaves room for multiple interpretations and can lead to confusion and inconsistency in enforcement. Furthermore, the definitions provided for terms like "wallet" and "validator" do not align with their commonly understood technical meaning. It is imperative that the SEC provides clear and comprehensive definitions for all terms used in the proposed rule to ensure consistent interpretation and application. In addition to these specific concerns, I am also worried about the broader implications of the proposed rule. As a concerned citizen, it is my belief that America should lead and take charge in the world. However, the proposed rule falls short in demonstrating our commitment to innovation and progress. By not fully embracing the potential of multi-signature wallets and failing to provide clear definitions, we risk hindering the adoption of secure custody practices and impeding technological advancements in the industry. It is crucial for the SEC to seize this opportunity to lead the way and set an example for other jurisdictions. In conclusion, I urge the SEC to revisit and address the concerns raised regarding the proposed rule on Safeguarding Advisory Client Assets. Giving due consideration to multi-signature wallets, defining terms clearly, and demonstrating leadership in the field of asset custody will contribute to investor confidence and the continued growth of the industry. It is my sincere hope that the SEC remains committed to protecting investors while fostering innovation and maintaining America's position as a global leader. Thank you for the opportunity to provide my input on this important matter. Sincerely, Nathan Espinosa