Oct. 29, 2023
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 SEC's efforts to enhance investor protections, I believe that certain aspects of the rule may have a negative impact on the growth and development of decentralized finance (DeFi) projects, limiting innovation and potential financial inclusion. One of the key issues I would like to address is privacy. Under the proposed rule, investment advisers would be required to provide detailed information about their clients' custodial accounts, including sensitive financial data and social security numbers. The widespread dissemination of such personal information raises considerable privacy and security concerns. With so many third parties having access to this data, there is an increased risk of identity theft and unauthorized use of personal financial information. In a world where cybercrimes are becoming increasingly prevalent, it is imperative to protect the privacy and safety of individuals' financial data. Furthermore, the proposed rule's focus on qualified custodians may hinder the growth of DeFi projects, which aim to provide decentralized and innovative financial solutions. DeFi projects often operate on blockchain technology, offering users greater control over their assets and reducing reliance on intermediaries. By mandating the use of qualified custodians, the proposed rule may stifle the flexibility and accessibility that DeFi projects seek to provide. In addition, the rule's requirements for the segregation of client assets may impose burdensome costs on smaller investment advisers and their clients. While the goal of safeguarding client assets is commendable, the proposed rule fails to take into account the unique characteristics and requirements of DeFi projects. This one-size-fits-all approach may limit the ability of smaller advisers to compete in the market and hinder their ability to serve a diverse range of clients effectively. Rather than imposing stringent requirements on investment advisers, I believe that a more balanced approach is necessary to both protect investor assets and promote innovation in the financial industry. The SEC should consider alternative measures that foster the growth of DeFi projects while still ensuring adequate safeguards for investors. This may include engaging with industry experts and stakeholders to develop more nuanced regulations that account for the rapidly evolving nature of decentralized finance. Furthermore, the SEC should prioritize the development of clear guidelines for the safe custody of digital assets, given their unique characteristics and challenges. By working closely with DeFi practitioners, the SEC can strike a balance between safeguarding client assets and fostering innovation in a rapidly evolving digital landscape. In conclusion, I urge the SEC to carefully reconsider the proposed rule on "Safeguarding Advisory Client Assets" in light of its potential negative impact on decentralized finance projects and privacy concerns. The SEC should seek a more balanced and inclusive approach that encourages innovation while maintaining investor protections. I strongly believe that with the right regulatory framework, we can foster a vibrant and secure financial ecosystem that benefits investors, advisers, and communities as a whole. Thank you for considering my comments on this important proposal. Sincerely, Lukasz