Oct. 22, 2023
October 22, 2023 Securities and Exchange Commission 100 F Street NE Washington, DC 20549 Re: Safeguarding Advisory Client Assets, File Number S7-04-23 Public Comment on Proposed Rule Amendments Dear Securities and Exchange Commission, I am writing to provide my comments and concerns regarding the proposed rule amendments on the safeguarding of advisory client assets. While I appreciate the SEC's intention to enhance investor protections and address gaps in the custody rule, I believe there are certain aspects of the proposal that need further consideration. Firstly, I am concerned about the potential negative impact that these proposed rules may have on the innovation and development of blockchain technology. Blockchain has the potential to revolutionize the financial industry, providing increased efficiency, transparency, and security. However, these proposed rules, particularly the increased reporting requirements, may impose excessive regulatory burdens and impediments on blockchain-based projects. This could stifle innovation and hinder the growth of this emerging technology. It is important that the SEC carefully considers the potential negative consequences that these rules may have on blockchain innovation and takes steps to mitigate any unnecessary barriers. Additionally, I am worried about the impact of these rules on small businesses and startups in the advisory industry. The proposed reporting requirements will impose significant costs on small businesses, requiring them to track personal identifiable information, which they would not otherwise be required to do. This additional burden could put small businesses and start-ups at a severe disadvantage and restrict their ability to compete. The SEC should be mindful of the potential stifling effect that these costs could have on smaller players in the industry and consider alternative approaches that reduce the financial burden on these entities while still maintaining investor protections. Furthermore, I urge the SEC to carefully consider the economic analysis of the proposed rule amendments. While investor protections are of paramount importance, it is crucial to strike a balance between safeguarding client assets and the associated compliance costs. The SEC's analysis acknowledges the costs that investment advisors will incur, but it must ensure that these costs are not disproportionately burdensome, particularly for smaller advisors. Additionally, the SEC should explore and analyze potential benefits and costs that may have been overlooked during the economic assessment. Lastly, in line with Section IV.B of the proposal, I express my concern about the confidentiality of client data and the potential risks associated with the collection of personal identifiable information. The SEC must take appropriate measures to ensure the security and privacy of sensitive information and provide clear guidelines for advisors on how to handle and protect client data. We must strike a delicate balance between safeguarding client assets and protecting individual privacy rights. In conclusion, while the proposed rule amendments on the safeguarding of advisory client assets aim to enhance investor protections, there are certain aspects that require further consideration. I urge the SEC to carefully evaluate the potential negative impact on blockchain innovation, the burden imposed on small businesses, the economic effects of the rules, and the protection of client data. By addressing these concerns, the SEC can effectively achieve its regulatory objectives while fostering a thriving and innovative industry. Thank you for considering my comments on this important matter. Respectfully, Jennifer Martinez, CPA, CFP