Blockchain industry resists SEC’s comprehensive audit trail regulations

The DeFi Education Fund and the Blockchain Association have filed an amicus brief in support of a legal challenge against the Securities and Exchange Commission’s (SEC) Consolidated Audit Trail (CAT).

They highlighted significant privacy and security concerns related to the CAT, especially for those in the digital asset market, and argued that it could undermine financial privacy.

Both organizations have previously submitted similar briefs on various regulatory issues, including the exclusion of airdrops from the SEC’s classification of securities.

Consolidated Audit Trail

The CAT, which has been operational since April, is the largest government-mandated collection of personal financial data in US history. It aims to create a centralized database that tracks all securities trades across US markets.

The database would be accessible to SEC regulators and thousands of private staff members without a warrant or probable cause. Critics believe this level of access raises significant privacy concerns, particularly regarding sensitive financial data.

The NCLA, which initiated the lawsuit in April, argues that the SEC has exceeded its regulatory authority with the CAT. The case has garnered over 50 amicus curiae briefs, demonstrating widespread concerns in the financial and crypto sectors.

Unique risks

The brief argues that the CAT presents unique risks for digital asset transactions. The SEC’s stance that many digital asset market participants may be considered exchanges, brokers, or dealers could subject them to the CAT’s extensive reporting requirements.

This could result in the linkage of personally identifiable information with blockchain wallet addresses, exposing users’ transaction histories to unprecedented scrutiny. This possibility has raised concerns about potential overreach and the erosion of financial privacy.

Laura Sanders, policy counsel at the Blockchain Association, emphasized the broader implications of the CAT, stating:

“The CAT program’s extensive surveillance of personal financial data, including potentially sensitive blockchain transactions, is a significant overreach that threatens to normalize invasive government oversight.”

Moreover, the CAT’s broad scope raises significant security concerns. With sensitive data from millions of transactions centralized in one database, the CAT could become a prime target for cyberattacks.

This risk is exacerbated by the number of individuals with access to the system, further heightening fears of potential data breaches that could compromise both traditional financial data and blockchain transaction records.

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