Oct. 19, 2023
I am writing today to express my deep concerns regarding the proposed "Safeguarding Advisory Client Assets" rule. It is essential that we carefully deliberate on the potential implications of this regulatory proposal, which seeks to enhance safeguards for investors and address gaps in custody rules. First and foremost, the broadening of the proposed rule's scope to encompass a wider array of investments held in a client's account carries substantial implications for investment advisors. The proposal necessitates additional precautions and compliance measures to protect these assets, which could impose a significant burden, particularly on smaller firms that may lack the necessary resources without incurring substantial expenses. In considering this proposal, we must be mindful of a landmark precedent established by the U.S. Supreme Court in Butcher's Union Co. v. Crescent City Co. (1884). This historic case emphasized the importance of achieving a delicate equilibrium between regulatory oversight and the practicality of compliance, ensuring that regulations do not unduly burden businesses and individuals. The Court held that regulations should be crafted with due consideration of their impact on the entities they govern. The proposed rule's potential to create substantial burdens for smaller investment advisors and firms appears to run counter to this fundamental principle set over a century ago. Furthermore, the proposal raises concerns about data security. As an individual, I hold profound concerns about the confidentiality and security of my sensitive financial information, including my social security number. Allowing multiple third parties access to this data may jeopardize my personal security and leave my family vulnerable to unforeseen threats, particularly in the event of a data breach. It is crucial that any regulations in this domain prioritize the preservation of investors' privacy rights, ensure rigorous safeguards for the collection and dissemination of personal financial data, and mandate stringent cybersecurity measures to protect against data breaches. Moreover, the proposed rule's implementation may be vulnerable to regulatory capture, a significant issue that warrants careful consideration. Regulatory capture occurs when the regulatory agency responsible for enforcing rules and regulations becomes influenced or dominated by the very industries it is designed to oversee. This undue influence can compromise the agency's ability to impartially protect the interests of the public and investors. It is imperative that the creation and enforcement of this rule remain independent, transparent, and robust against industry influence to ensure that investor protections are genuinely upheld. Additionally, recent actions by the SEC have had adverse effects on my financial well-being over the past year, causing some to perceive regulatory overreach. This experience underscores the necessity for a comprehensive reevaluation and potential restructuring of the SEC. Such a restructuring should aim to strike a delicate balance between effective investor protection and the fostering of an environment that encourages growth and innovation in the financial sector. In addition to these concerns, the proposed rule contains ambiguously defined terms, creating potential confusion and misinterpretation. Terms such as "platform," "software," and "ledger" lack clarity and may be subject to multiple interpretations. This lack of precision could hinder the effective implementation of the regulations, making compliance difficult for investment advisors. Furthermore, terms like "wallet" and "validator" are defined in a manner that deviates from their technical meanings, potentially fostering misunderstandings and exacerbating confusion regarding compliance requirements. In conclusion, while I endorse the aspiration of strengthening investor protections and addressing custody rule deficiencies, I firmly believe that the "Safeguarding Advisory Client Assets" proposal requires thorough examination and necessary revisions. The concerns regarding the rule's scope, data privacy, regulatory capture, SEC restructuring, and the potential for unforeseen threats, as well as the unclear terminology and data security vulnerabilities, should be meticulously addressed to ensure that the proposed regulations effectively achieve their intended objectives without imposing undue burdens or unintended consequences. I extend my sincere gratitude to the Commission for considering these comments on this weighty matter. Respectfully, Nick Russo Sent with Proton Mail secure email.