Oct. 23, 2023
Dear securities and Exchange Commission, I am writing to express my concerns and opposition regarding the proposed rule on "Safeguarding Advisory Client Assets." While I appreciate the SEC's intent to enhance investor protections and address gaps in the custody rule, there are certain provisions within the proposed rule that raise significant concerns about investor access and the privacy and safety of sensitive financial information. Firstly, I am deeply concerned about the potential negative impact on investor access, particularly in relation to digital assets. The proposed rules may inadvertently restrict investor access to this emerging asset class by imposing burdensome regulations on investment advisers. By expanding the coverage and defining assets held in a client's account, the rule effectively creates additional barriers to entry, limiting investors' ability to participate and benefit from this innovative and rapidly evolving market. This could stifle innovation, limit market growth, and ultimately hinder the potential returns on investment that investors seek in the digital asset space. Furthermore, I am extremely troubled by the privacy implications of the proposed rule. As an individual investor, the privacy and safety of my sensitive financial data is of utmost importance. The rule's requirement to provide detailed custodian information and custodial account numbers to clients raises serious privacy concerns. This potentially exposes investors to increased risks of identity theft, fraud, and other malicious activities. The vast amount of personal financial data transmitted to multiple intermediaries and third parties increases the vulnerability of investors and undermines the trust and confidence in the financial ecosystem. Additionally, the proposed rule's emphasis on third-party custodians introduces potential risks to the privacy and security of personal information. By relying heavily on these external custodians, investors are forced to entrust their financial data with a multitude of entities, increasing the likelihood of data breaches and unauthorized access. This should be of paramount concern as we have witnessed numerous high-profile data breaches in recent years, leading to financial losses and irrevocable damage to individuals' privacy. Furthermore, the increased compliance burdens placed on investment advisers, as outlined in the proposed rule, may inadvertently lead to increased costs for investors. These additional costs may disproportionately impact smaller investors, limiting their ability to access professional investment advice and potentially undermining their financial well-being. It is essential that any regulatory changes strike a balance between investor protection and maintaining affordable and accessible investment opportunities for all individuals. In light of these concerns, I urge the SEC to thoroughly evaluate the potential negative impact of the proposed rule on investor access and the privacy and safety of financial information. It is important to carefully consider alternative approaches that mitigate risks while fostering innovation, protecting privacy, and maintaining investor access to emerging asset classes. I appreciate the opportunity to voice my concerns on these critical matters. My hope is that the SEC will take this feedback into serious consideration, seeking to refine the proposed rule to better serve the interests of investors and uphold the principles of privacy and security in the financial industry. Sincerely, Felix Sommer