Oct. 29, 2023
I am writing in response to the proposed rule titled "Safeguarding Advisory Client Assets," issued by the Securities and Exchange Commission (SEC). As a concerned citizen and resident of New Mexico, I would like to express my reservations regarding the treatment of smart contracts and the potential privacy and security risks associated with widespread access to sensitive financial data and personal information. My first concern revolves around the limited consideration given to the unique characteristics of smart contracts. These contracts operate on blockchain technology and offer benefits such as transparency, immutability, and enhanced security. However, the current proposal fails to acknowledge the potential advantages and challenges associated with the use of smart contracts in safeguarding client assets. Without a clear regulatory framework for smart contracts, there may be legal uncertainties and unintended consequences that could affect investor protections. Furthermore, I am deeply troubled by the potential privacy and safety implications of the proposed rule. The requirement for investment advisers to disclose detailed information about custodians and custodial account numbers to clients raises alarm bells regarding data protection. While transparency is crucial, the copious sharing of such confidential information with multiple third parties significantly increases the risk of data breaches, identity theft, and other malicious activities. Considering the rising number of cybersecurity threats and the ever-increasing sophistication of data breaches, it is imperative that the SEC takes adequate measures to address and mitigate potential risks associated with the proposed rule. Robust safeguards, such as encryption and secure data storage, must be implemented to ensure the privacy and integrity of client information. Additionally, mandatory reporting of data breaches and strict penalties for non-compliance should be established to hold custodians accountable for any breaches. Furthermore, it is necessary for the proposal to provide clear guidelines regarding the responsibilities and liabilities of custodians in safeguarding client information. Investment advisers should be obligated to conduct thorough due diligence when engaging with custodians and establish contractual agreements outlining security measures and clarifying liability for potential breaches. In conclusion, I strongly urge the SEC to conduct a comprehensive assessment of the potential risks and regulatory challenges associated with the use of smart contracts in safeguarding client assets. Additionally, I emphasize the need for robust privacy and security measures to protect sensitive financial information from unauthorized access and mitigate the risk of data breaches. By establishing comprehensive regulatory oversight and implementing adequate security measures, we can uphold investor protections while facilitating innovation and efficiency within the advisory industry. Thank you for considering my comments on this important proposal. Kind Regards, Marc Reynolds