Oct. 31, 2023
Dear Securities and Exchange Commission, I write to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets" which aims to enhance investor protections and address gaps in the custody rule. While I appreciate the objective of safeguarding client assets, I believe that the Securities and Exchange Commission (SEC) has not adequately considered the unique properties of cryptocurrency and digital assets in formulating these regulations. Digital assets, such as cryptocurrency, have emerged as a transformative force in the financial industry, leveraging blockchain technology to revolutionize traditional systems of value transfer. However, the SEC's proposed rule fails to account for the decentralized nature and technological complexities of digital assets, leading to impractical and burdensome regulatory requirements. Cryptocurrency exists outside the bounds of traditional custodial relationships, as it operates on decentralized networks that do not conform to the typical definition of a qualified custodian. The proposed rule, by enforcing the same custody requirements for digital assets as for traditional assets, fails to recognize the fundamental differences between these asset classes. This lack of nuance disregards the unique challenges associated with demonstrating exclusive control over digital assets and places an undue burden on investment advisers. Furthermore, the SEC's proposed rule overlooks the existing regulatory framework that governs digital assets. Various federal and state regulatory bodies have already undertaken efforts to assert jurisdiction over digital assets, imposing their own registration, custody, and recordkeeping requirements. Instead of aligning with these existing regulations, the SEC's proposal introduces additional layers of complexity and potentially conflicting standards, which may lead to compliance challenges for investment advisers operating in this space. To address these concerns, I urge the SEC to undertake a thorough investigation into the legal and technological aspects of digital assets in order to develop more tailored and practical regulatory requirements. This should involve engaging with stakeholders in the cryptocurrency industry to better understand the unique challenges and inherent safeguards of this emerging asset class. By taking this approach, the SEC can ensure that they are not stifling innovation and growth in the digital asset space while still providing adequate investor protections. Moreover, the SEC should explore reasonable alternatives to the proposed rule that align with the unique properties of digital assets. This could include the development of a separate regulatory framework specifically tailored to digital assets or the creation of a qualified custodian category that recognizes alternative custody arrangements for these assets. It is crucial that the SEC fosters an environment that encourages innovation and entrepreneurship in the cryptocurrency industry, while still maintaining necessary investor protections. By carefully considering the unique properties and challenges associated with digital assets, the SEC can strike an appropriate balance between regulatory oversight and industry development. In conclusion, the SEC's proposed rule "Safeguarding Advisory Client Assets" requires further consideration of the unique properties and challenges of digital assets, particularly in the realm of cryptocurrency. By engaging with industry stakeholders and taking a nuanced approach, the SEC can ensure that its regulations are effective, practical, and conducive to both investor protection and innovation in the cryptocurrency industry. Thank you for considering my comments and concerns. Sincerely, Timothy Mullins