Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns about the proposed rule on "Safeguarding Advisory Client Assets". While I acknowledge that the aim of this rule is to enhance investor protections and address gaps in the custody rule, I believe that there are certain aspects of the proposal that may exceed the SEC's regulatory authority and encroach on areas that should be regulated by other agencies. One specific concern I have is regarding the potential for identity theft. The proposed regulations would require many participants in decentralized finance (DeFi) to collect user information, which includes sensitive taxpayer information. This raises serious concerns about the storage and security of this data. Without proper safeguards in place, there is a risk of creating honey pots for identity theft under the guise of tax reporting. As we have seen in recent years, data breaches and identity theft have become all too common, and it is essential that any regulations implemented prioritize the protection of sensitive information. Furthermore, I believe that the proposed rule may impose an undue burden on small entities and hinder innovation in the DeFi space. The SEC should consider the unique nature of decentralized finance and strive to find a balanced approach that ensures investor protections without stifling innovation. While safeguarding client assets is of utmost importance, it should not come at the expense of hindering progress and the potential benefits that DeFi can bring to market participants. In addition to my concerns regarding potential regulatory overreach and the risk of identity theft, I would also like to raise questions about the economic impact of the proposed rule. The economic analysis provided by the SEC acknowledges the challenge of estimating the economic effects due to varying practices among investment advisers. However, it is crucial that the potential costs and benefits of the proposed rule be thoroughly evaluated to ensure that it strikes the right balance between investor protections and the efficient functioning of the market. I commend the SEC for seeking public input and considering the economic impact of the proposed rule. However, I urge the Commission to carefully consider the concerns raised by industry participants, particularly regarding potential regulatory overreach and the protection of sensitive taxpayer information. It is essential that any regulations implemented prioritize investor protections without stifling innovation and burdening small entities. Thank you for considering my public comment on this important matter. Sincerely, Sunil Mahmi