Oct. 29, 2023
Dear Sir or Madam, I am writing to provide my public comment regarding the proposed rule, "Safeguarding Advisory Client Assets." While I appreciate the Securities and Exchange Commission's (SEC) efforts to enhance investor protection and address the gaps in the custody rule, I have concerns about the lack of consideration given to privacy and security concerns associated with the custody of digital assets. The proposed rule expands the coverage to include a broader range of investments held in a client's account, which includes digital assets such as cryptocurrency. As we are all aware, digital assets, particularly cryptocurrencies built on blockchain technology, have transformed the financial landscape by offering new investment opportunities. However, the regulatory uncertainties surrounding digital assets present unique challenges for both investors and investment advisers. One of the primary concerns I have with the proposed rule is the lack of adequate measures to address privacy and security risks associated with the custody of digital assets. The cybersecurity landscape is ever-evolving, and investment advisers must adapt to increasingly sophisticated threats to protect their clients' assets. The proposed rule does not provide clear guidance or prescribe specific security protocols to safeguard digital assets, potentially leaving investors' assets at risk. It is crucial to recognize that digital assets can be particularly vulnerable to theft, unauthorized access, and hacking attempts due to their digital nature and the pseudonymous nature of blockchain technology. Investment advisers must have robust security measures in place, including encryption techniques, multi-factor authentication, and ongoing monitoring, to protect against potential breaches. The proposed rule must explicitly address these privacy and security concerns to ensure the safe custody of digital assets. Additionally, the proposal should provide further clarity on how investment advisers can demonstrate exclusive control over digital assets, as this aspect is critical for compliance with custody and safeguarding requirements. Considering the decentralized nature of blockchain technology, demonstrating exclusive control may be more complex compared to traditional forms of assets custodianship. Clear guidelines should be established to help investment advisers navigate this challenging landscape and prevent potential misuse or misappropriation of digital assets. Furthermore, it is essential to address the regulatory uncertainty surrounding digital assets and provide greater guidance to investment advisers operating in this space. The rapid pace of technological advancements and the evolving regulatory environment necessitate immediate action to ensure investor protection. The proposed rule should outline a clear and comprehensive regulatory framework for digital asset custody, addressing compliance requirements, reporting obligations, and disclosure standards. To mitigate the risks associated with digital assets, I strongly urge the SEC to work closely with industry participants and technology experts to develop practical guidelines and best practices for digital asset custody. A collaborative approach, involving stakeholders from the investment advisory community, cybersecurity experts, and digital asset custodians, would help foster innovation while ensuring robust investor protection. In conclusion, while I appreciate the SEC's efforts to enhance investor protection through the proposed rule, I urge you to prioritize the consideration of privacy and security concerns associated with the custody of digital assets. Providing clear guidance and establishing a comprehensive regulatory framework will help safeguard investors' assets and promote greater confidence and transparency in the digital asset market. Thank you for considering my comments on this important matter. I urge the SEC to address these concerns and provide additional clarity on the custody and safeguarding of digital assets. Please do not hesitate to reach out to me should you require any further information or clarification. Sincerely, Jonathan P. Sent with Proton Mail secure email.