Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing as a concerned U.S. citizen to express my reservations regarding the proposed rule titled "Safeguarding Advisory Client Assets" by the Securities and Exchange Commission (SEC). While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I believe that there are significant shortcomings in the proposed rule that need to be addressed, particularly with regard to the custody of digital assets. Privacy and security concerns associated with the custody of digital assets are of utmost importance in today's rapidly evolving financial landscape. The proposal, unfortunately, fails to adequately consider these concerns, leading to potential risks to investors' assets. As digital assets, like cryptocurrencies, continue to gain prominence and reshape the financial industry, it is imperative for regulators to adopt a proactive approach that ensures the safeguarding of these assets. By not explicitly addressing the unique characteristics and challenges of digital assets, the proposed rule falls short of providing comprehensive protection for investors. The lack of guidance on custody practices for digital assets leaves investors vulnerable to security breaches and theft. It is crucial for the SEC to collaborate with experts in the field to develop clear guidelines on best practices for the safe custody of these assets. Furthermore, the proposal should consider providing additional regulatory oversight and accountability for entities that offer custodial services for digital assets. Implementing robust security measures, such as multi-factor authentication and secure cold storage solutions, should be the minimum standard for custodians of digital assets. Stronger regulatory frameworks are necessary to protect investors from potential hacks, fraud, or misappropriation of digital assets. In addition to adequate security measures, clear regulations surrounding custodial control and ownership verification are necessary for digital assets. The decentralized nature of blockchain technology presents both opportunities and challenges. Demonstrating exclusive control and ownership over digital assets can be complex. Hence, the proposal should include specific provisions to address custody challenges associated with digital assets and provide guidelines for demonstrating exclusive control in the context of blockchain technology. It is also imperative for the SEC to acknowledge the need for ongoing education and training for investment advisers to ensure their understanding of the unique risks and best practices associated with the custody of digital assets. Regular professional development programs that focus on emerging technologies and security measures will not only enable advisers to make informed decisions, but also instill investor confidence in the industry. In conclusion, the proposed rule fails to adequately address the privacy and security concerns associated with the custody of digital assets, thus putting investors' assets at risk. The SEC must adopt a forward-thinking approach that explicitly includes comprehensive guidelines for safeguarding digital assets. By implementing clear regulations, providing robust oversight, and fostering ongoing education, the SEC can empower investors and promote the safe growth of the digital asset industry. Thank you for considering my concerns. I urge the SEC to revise the proposed rule to explicitly address the custody of digital assets, ensuring the privacy and security of investors' assets in this rapidly evolving digital era. Yours faithfully, A Concerned U.S. Citizen