The Blockchain Association and DeFi Education Fund say a new database run by the U.S. Securities and Exchange Commission could pose privacy concerns for millions of people and include digital assets.
In 2012, following the financial crisis, the SEC adopted Rule 613, requiring national securities exchanges and financial industry regulators to maintain consolidated audit trails (CATs). target In 2017, former SEC Chairman Jay Clayton said the goal was to allow regulators to oversee securities markets on a “uniform basis.”
According to the Securities Industry and Financial Markets Association, the integrated audit trail will be fully operational by the end of May 2024.
The 351-page rule does not specifically mention digital assets, but the two crypto groups say they are required to report information to the CAT because the SEC believes many crypto participants are exchanges or brokers.
CAT is ““By turning the blockchain into a massive, fully anonymized repository that the government can freely search, there would be no need to show probable cause to obtain a warrant,” the groups wrote in a court brief filed Thursday.
“Due to the nature of blockchain technology, access to even a single, ostensibly restricted identity record opens up an unprecedented treasure trove of unrelated financial transactions made by that user, all of which can be inspected by the federal government and many private parties, past, present, and future,” they wrote succinctly.
The amicus brief was filed in April as part of a class action lawsuit brought by the conservative think tank National Center for Public Policy Research and two Texas residents, Erik Davidson and John Restivo, against the SEC and its chairman, Gary Gensler. Others, including the American Securities Association, also filed an amicus brief in the U.S. District Court for the Western District of Texas.
The SEC has filed several lawsuits against cryptocurrency companies and institutions over the years. In the case of some exchanges, including Coinbase and Kraken, the regulator alleged in enforcement actions that the companies were operating as unregistered exchanges and brokers.
“As we explained in our friend’s brief, the SEC’s current stance on digital assets is likely to result in the SEC telling digital asset trading platforms they must report detailed transaction information to the CAT, as expressed in several enforcement actions,” said Amanda Tuminelli, Chief Legal Officer of DeFi Education Fund. name. “Because CAT also collects personally identifiable information related to transactions, our biggest fear, as we expressed to the court, is that CAT will become a repository of user information associated with specific wallet addresses.”
“The privacy issues here are serious,” Tuminelli added.
The groups also warned that the CAT database could be vulnerable to hacking.
“To make matters worse, there is a significant risk that user data submitted to CAT databases could be leaked to external parties, either through accidental or malicious exploitation. Data breaches are on the rise, despite organizations spending more money than ever on cybersecurity.” Here’s the gist.
The SEC declined to comment to The Block on this matter.
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