Oct. 29, 2023
Securities and Exchange Commission 100 F Street NE Washington, DC 20549-6673 Subject: Proposed Rule - Safeguarding Advisory Client Assets; File Number: S7-31-20 Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on Safeguarding Advisory Client Assets. While I appreciate the Securities and Exchange Commission's (SEC) efforts to enhance investor protections and address gaps in the custody rule, I believe that certain aspects of the proposed rule lack clarity and may infringe upon the privacy and safety of investors. Firstly, I would like to address the lack of clarity in the definition of digital assets. The proposal fails to provide clear guidance on what constitutes a digital asset, leading to confusion and potential misinterpretation. In an era where cryptocurrencies and other digital assets are rapidly gaining prominence, it is crucial to establish a comprehensive and unambiguous framework to safeguard these assets. A failure to define digital assets adequately may result in regulatory arbitrage and hinder the SEC's ability to effectively protect investors. Furthermore, I am deeply concerned about the privacy and safety implications associated with allowing multiple third parties access to sensitive financial data, including personally identifiable information and social security numbers. While I understand the need for transparency and regulatory oversight, it is crucial to strike a balance between investor protection and maintaining the privacy rights of individuals. A comprehensive framework for data protection and robust cybersecurity measures should be enshrined in the proposed rule to mitigate potential data breaches and identity theft risks. In addition to these concerns, I urge the SEC to consider the following suggestions to ensure the effectiveness and fairness of the proposed rule: Provide detailed guidance on the application of the rule to emerging technologies and digital assets, including cryptocurrencies, tokens, and blockchain-based holdings. This will foster regulatory certainty and facilitate investor confidence. Consider the development of specific regulations or standards for qualified custodians handling digital assets. These regulations should address issues such as exclusive control, cold storage, multi-signature arrangements, and key management practices. Implement stringent data protection measures, including encryption, secure storage protocols, and regular security audits for firms handling sensitive client information. By promoting robust cybersecurity practices, investors will have heightened confidence in the safety of their assets and personal data. Prioritize the development of a unified regulatory framework in collaboration with other regulatory bodies to prevent regulatory arbitrage and ensure consistency across jurisdictions. This will safeguard investors and promote market integrity. Conduct regular reviews and assessments of the rule to address emerging trends and technologies in the advisory sector that may impact the safeguarding of client assets. Flexibility and adaptability are essential in an industry rapidly evolving with technological advancements. In conclusion, I believe that the proposed rule on Safeguarding Advisory Client Assets has the potential to significantly enhance investor protections. However, it is crucial to address the issues of clarity regarding digital assets and prioritize the privacy and safety concerns associated with granting access to sensitive financial and personal information. I respectfully request that the SEC carefully considers these concerns, implements the suggested changes, and ultimately formulates a rule that strikes the right balance between investor protection and individual privacy. Thank you for considering my comments. I appreciate the opportunity to provide input on this important matter. Should you or your team have any additional areas of concern related to this proposed rule or have any questions, please do not hesitate to reach out to me. Sincerely, anonymous