Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing to provide my comments and concerns regarding the proposed rule titled "Safeguarding Advisory Client Assets." While I appreciate the efforts made by the SEC to enhance investor protections and address gaps in the custody rule, there are several issues that need to be addressed to ensure the overall effectiveness and transparency of the proposed regulations. One concerning aspect is the lack of consideration for privacy and security concerns associated with the custody of digital assets. In an increasingly digital world, the protection of sensitive information is paramount. The proposed rule does not adequately address the privacy and security risks associated with the collection and storage of this information. This lack of attention puts investors' assets at risk, as it may create vulnerabilities that could be exploited by bad actors. Identity theft is a significant concern that arises from these proposed regulations. By requiring participants in decentralized finance (DeFi) and other digital asset platforms to collect user information, the SEC inadvertently creates opportunities for sensitive taxpayer information to be stored without adequate safeguards. This, in turn, may encourage the creation of attractive targets for identity thieves under the guise of tax reporting. It is imperative that any regulations concerning the custody of digital assets take into account the privacy and security implications and include robust measures to mitigate the risk of identity theft. Furthermore, the complexity of the proposed rule is a genuine concern. As currently drafted, the regulations are overly complicated and difficult to understand, raising the risk of unintentional noncompliance. Investors and investment advisers alike may struggle to decipher the requirements, leading to inadvertent violations and potentially severe consequences. To ensure a better understanding and implementation, the SEC must strive to simplify the rule and provide clear and concise guidance. In addition to the aforementioned concerns, I would also like to touch upon the economic analysis provided in the proposal. While I understand the importance of striking a balance between investor protection and compliance costs, it is crucial to consider the potential burdens that may be placed on investment advisers. The estimated costs and hours associated with compliance, as outlined in the proposal, need to be carefully assessed to avoid excessive financial strain on advisers, which may ultimately disadvantage both advisers and their clients. In conclusion, I urge the SEC to thoroughly address the privacy and security concerns associated with the custody of digital assets. The proposed rule must include robust safeguards to protect investors from the rising threat of identity theft. Additionally, it is critical that the SEC simplifies the language and requirements of the rule to ensure clarity and prevent unintended noncompliance. Finally, a comprehensive evaluation of the economic impact on investment advisers is necessary to strike the right balance between regulatory effectiveness and the sustainability of adviser practices. Thank you for the opportunity to provide my comments and suggestions for the proposed rule. I hope that my concerns will be carefully considered and integrated into the final regulations to better safeguard the assets and privacy of investors. Sincerely, Preston Barnes