Oct. 23, 2023
John, I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). While the rule aims to enhance investor protections and address gaps in the custody rule, I believe there are certain issues that need to be addressed, particularly regarding the custody of digital assets or cryptocurrencies. One major concern is the lack of consideration for privacy and security concerns associated with the custody of digital assets. As digital assets, including cryptocurrencies, become more prevalent in the investment industry, it is imperative that adequate measures are taken to ensure their safeguarding. The proposal, however, fails to provide clear guidelines for protecting investors' assets in this digital realm, leaving them vulnerable to security breaches and potential loss. Unlike traditional assets, digital assets are stored on blockchain technology, which utilizes complex cryptographic algorithms to secure transactions and verify ownership. The custody of these assets requires a nuanced approach, taking into account the unique privacy and security risks they present. Without proper safeguards, investors may face the risk of unauthorized access to their digital assets, leading to irreversible loss. Additionally, there are regulatory uncertainties surrounding the treatment of digital assets, further compounding the need for a comprehensive and tailored approach. The proposal needs to acknowledge and address these uncertainties, providing clear guidelines for investment advisers on how to effectively safeguard digital assets while ensuring compliance with existing regulations. To mitigate these concerns, the SEC should consider collaborating with industry experts and stakeholders to develop guidelines specific to the custody of digital assets. These guidelines should cover areas such as secure storage, encryption measures, multi-factor authentication, regular security audits, and incident response protocols. By doing so, the SEC can provide clarity and establish best practices to protect the growing number of investors who hold digital assets within their portfolios. Furthermore, the proposal should recognize the importance of continuous monitoring and adaptation to evolving cybersecurity threats. The rapidly changing landscape of digital assets requires a proactive approach to ensure the continued safety and security of investors' holdings. Regular cybersecurity assessments and updates to industry best practices should be integral parts of any regulatory framework. In conclusion, while the proposed rule addresses important aspects of client asset safeguarding, it falls short in adequately considering the unique privacy and security concerns associated with digital assets. As an investor, I urge the SEC to take these concerns seriously, collaborating with industry experts to develop comprehensive guidelines specific to the custody of digital assets. By doing so, the SEC can strengthen investor protections and promote confidence in the rapidly evolving digital asset landscape. Thank you for considering my concerns. I appreciate the opportunity to provide my input on this important regulatory matter. Sincerely, John