Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets." While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, there are several concerns and issues that need to be addressed to ensure the rule achieves its objectives without detrimentally affecting stakeholders. First, I would like to raise concerns regarding the lack of consideration for privacy and security concerns associated with the custody of digital assets. The proposal does not adequately address these concerns, posing a significant risk to investors' assets. With the increasing prevalence of cyber threats and identity theft, it is crucial to establish robust safeguards to protect sensitive taxpayer information from potential breaches. Requiring the collection of user information without proper safeguards could inadvertently create honey pots for identity theft under the guise of tax reporting, putting individuals at greater risk. It is imperative that the SEC takes a comprehensive approach in evaluating the potential privacy and security implications of the proposed regulations and works towards fostering a safe environment for investors. Additionally, there is a need for an inquiry into the role of cryptographic techniques, such as zero-knowledge proofs, in facilitating compliance with these proposed regulations while preserving user privacy. These technologies offer promising solutions that can strike a balance between regulatory requirements and maintaining individual privacy. It is essential that the SEC explores the integration of such technologies into the regulatory framework to ensure that privacy rights are upheld while achieving the desired objectives of investor protection. Furthermore, there should be clarification on the applicability of these proposed regulations to non-U.S. persons engaged in digital asset transactions involving U.S. residents or properties. The global nature of digital assets necessitates clarification on potential conflicts with international tax treaties and norms. Inconsistencies or conflicting regulations across jurisdictions can lead to compliance complexities and unfair treatment for market participants. Therefore, it is important for the SEC to provide clarity on the extent of these regulations' reach and their potential interactions with international frameworks. Moreover, the proposed regulations could potentially burden taxpayers who may be required to reconcile multiple sources of information related to their digital asset transactions. This includes reports filed by brokers, third-party service providers, and other intermediaries. The complexity and the potential for conflicting or duplicative reporting requirements could impose significant costs and administrative burdens on taxpayers, hindering the growth and adoption of digital assets. The SEC should conduct further analysis to understand the impacts of these requirements and explore targeted relief options for affected individuals. In conclusion, while the proposed rule "Safeguarding Advisory Client Assets" aims to enhance investor protections, it is crucial to address the mentioned concerns and issues to ensure these objectives are achieved without sacrificing privacy rights or hindering innovation. Through careful consideration of privacy and security concerns, exploration of technological solutions, clarification of international applicability, and adoption of targeted relief options, regulations can strike the right balance between investor protection and industry growth. I urge the SEC to actively engage with stakeholders to craft a rule that is comprehensive, fair, and forward-thinking. Thank you for considering my comments. Sincerely, Henrik