Oct. 18, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on safeguarding advisory client assets, specifically in relation to the requirements for safeguarding assets that cannot be maintained with a qualified custodian. While I understand the importance of enhancing investor protection, I believe that the proposed rule may place an undue burden on investment advisers in terms of recordkeeping, separation of duties, and regular reviews. One of my main concerns pertains to digital assets or crypto. The proposed rule aims to address how investment advisers can safeguard these assets, but it fails to take into account the unique nature of digital assets and the regulatory uncertainties that surround them. Digital assets, such as cryptocurrency, are built on blockchain technology and have the potential to transform finance. However, without clear guidelines and regulations, these assets pose challenges for both advisers and investors. The SEC should take the time to thoroughly understand the intricacies of digital assets before implementing any rules that could stifle innovation and growth in this sector. Another concerning aspect is the privacy and safety associated with allowing multiple third parties to access sensitive financial data and social security numbers. Given the increasing prevalence of data breaches and identity theft, it is essential to prioritize the protection of personal information. The proposed rule may inadvertently expose individuals to the risk of identity theft by requiring the collection and storage of sensitive taxpayer information without sufficient safeguards in place. This could create a honey pot for malicious actors to exploit under the guise of tax reporting. Additionally, the proposed rule creates reporting requirements for various participants in decentralized finance (DeFi). While the intention may be to gather necessary information, it could lead to confusion and inconsistency in reporting. Multiple reports generated for the same transaction by different participants could create a significant administrative burden and hinder the efficient functioning of the market. Furthermore, the impact of the proposed rule on providers and users of DeFi platforms outside the United States has not been adequately addressed. The regulations should clearly define the limitations of reporting requirements for protocols run outside the US and for users located outside the country. Failing to do so may discourage international participation and innovation, ultimately inhibiting the growth and potential of the digital asset market. It is essential to highlight that the proposed rule utilizes certain terms, such as platform, software, and ledger, that lack clear definitions. This leaves room for multiple interpretations and potential confusion. Additionally, terms like wallet and validator, which have technical meanings within the digital asset space, are defined in a manner that does not accurately capture their technical nuances. Providing precise and well-defined terms will minimize ambiguity and ensure consistent interpretation and application of the rule. In conclusion, while the SEC's intention to enhance investor protection through the proposed rule is commendable, I urge you to consider the concerns raised regarding the requirements for safeguarding assets that cannot be maintained with a qualified custodian. It is crucial to take into account the unique challenges posed by digital assets or crypto, prioritize personal privacy and security, and ensure that the rule's provisions are clear and well-defined. By addressing these concerns, the SEC can strike a balance between regulation and innovation, effectively protecting investors while fostering a thriving digital asset market. Thank you for considering my comments on this matter. Sincerely,