Oct. 25, 2023
To whom it may concern at the Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets." While I understand the need for enhancing investor protections and addressing gaps in the custody rule, I believe the proposed rule lacks adequate consideration for privacy and security concerns, especially in relation to digital assets or crypto. Digital assets, such as cryptocurrencies, have been revolutionizing the financial industry with their underlying blockchain technology. However, the regulatory landscape surrounding these assets remains uncertain. It is essential that the Securities and Exchange Commission take into account the unique characteristics of digital assets when formulating rules and regulations. One major concern is that the proposal does not adequately address the privacy and security concerns associated with the custody of digital assets. Due to their decentralized nature, digital assets pose inherent risks that may not be sufficiently addressed by traditional custody rules. The SEC should consider the unique challenges and requirements related to the custody of digital assets to ensure that investors' assets are adequately protected. Furthermore, the proposal lacks clarity on how investment advisers should safeguard digital assets and demonstrate exclusive control. Cryptocurrencies are often stored in digital wallets, either on exchanges or through independent custodians. The rule should provide clear guidelines on how investment advisers should protect these assets and demonstrate that they exercise exclusive control over them. Without such guidance, investors' assets are at an increased risk of loss or theft. Additionally, the proposal should consider the potential impact of increased reporting requirements on privacy. The collection and storage of sensitive information related to digital assets raise concerns about data breaches, identity theft, and unauthorized access. The SEC should develop comprehensive guidelines to address these privacy concerns and mitigate the associated risks. Furthermore, the rule should recognize the evolving nature of digital asset custody and the potential for technological advancements. Imposing stringent regulatory requirements may stifle innovation and hinder the growth of the digital asset industry. The SEC should allow for flexibility and adaptability in the rule to encourage technological advancements and support the development of secure custody solutions for digital assets. In conclusion, it is crucial for the SEC to carefully consider the privacy and security concerns associated with the custody of digital assets. The proposed rule should provide clear guidance on safeguarding digital assets and ensuring the protection of investors' assets against loss or theft. Moreover, the SEC should strive to strike a balance between regulatory requirements and the promotion of innovation in the digital asset industry. Thank you for considering my concerns. I believe that addressing these issues will contribute to a more robust and secure investment environment for both advisors and clients. Sincerely, Jeffrey Kahn