Oct. 31, 2023
Ken Pesnell [REDACTED] 10-30-2023 Securities and Exchange Commission 100 F Street, NE Washington, DC 20549-1090 Subject: Public Comment on Proposed Rule "Safeguarding Advisory Client Assets" Dear Sir/Madam, I am writing to offer my public comment on the proposed rule "Safeguarding Advisory Client Assets" issued by the Securities and Exchange Commission. While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, I would like to express my concerns regarding the lack of consideration for privacy and security concerns associated with the custody of digital assets. As the proposal expands the coverage of investments held in a client's account, it is imperative to address the unique challenges posed by digital assets or cryptocurrency. The rapid growth of digital assets, built on blockchain technology, has revolutionized the financial industry. However, the regulatory landscape surrounding digital assets remains uncertain, creating significant privacy and security concerns for investors and advisers alike. The proposed rule does not adequately address the privacy and security concerns associated with the custody of digital assets, thereby putting investors' assets at risk. Blockchain technology allows for decentralized, immutable transactions, providing a level of security and transparency that traditional financial systems may lack. However, custody solutions for digital assets face unique challenges, such as the risk of hacking and potential loss of private keys. In its current state, the proposal fails to provide specific safeguards and guidelines for the custody of digital assets. The SEC must recognize the nuances of the rapidly evolving digital asset space and develop comprehensive regulations to safeguard investor assets without stifling innovation and growth. It is essential to strike a balance between investor protection and the need for technological advancements in the financial industry. To address these concerns, the SEC should collaborate with experts in cybersecurity and blockchain technology to develop clear guidelines that ensure the safe custody and protection of digital assets. Proactive measures, such as secure storage solutions, multi-factor authentication mechanisms, and regular testing for vulnerabilities, should be enforced to protect investors from potential security breaches. Additionally, the proposed rule should consider the privacy implications of custody arrangements involving digital assets. The SEC should safeguard investors' privacy by requiring investment advisers to adhere to stringent data protection standards and protocols, with a focus on limiting access to sensitive personal information, implementing robust encryption measures, and establishing protocols for potential data breaches. I strongly urge the SEC to take these concerns into consideration while finalizing the proposed rule. The rapid proliferation of digital assets and blockchain technology demands appropriate regulations that strike a balance between investor protection and the facilitation of technological advancements in our financial system. Failure to do so exposes investors to serious privacy and security risks. Thank you for considering my concerns regarding the proposed rule. I believe that with careful consideration of the privacy and security concerns associated with digital assets, the SEC can craft regulations that enhance investor protections without impeding innovation. I look forward to seeing thoughtful amendments to the proposed rule that address these critical issues. Should you require any further information or require clarification on any of the points I have raised, please do not hesitate to contact me at the address provided above. Thank you for your attention to this matter. Sincerely, Ken Pesnell