The DeFi Education Fund and the Blockchain Association have filed an amicus brief in support of a legal challenge to the Securities and Exchange Commission’s (SEC) Consolidated Audit Trail (CAT).
The letter highlighted the significant privacy and security concerns posed by the CAT, particularly for participants in the digital asset market, and argued that it could potentially compromise financial privacy.
The two organizations previously filed similar briefs challenging various regulatory issues, including the removal of airdrops from the SEC’s securities classification.
Consolidated audit trail
The CAT, operational since April, represents the largest government-mandated collection of personal financial data in U.S. history. The goal is to create a centralized database that tracks all securities transactions in the US markets.
This database would be accessible to SEC regulators and thousands of private employees without a warrant or probable cause. Critics argue that this level of access poses significant privacy concerns, especially in the context of increasingly sensitive financial data.
The NCLA, which filed the lawsuit in April, argues that the SEC overstepped its regulatory authority by creating the CAT. The case has generated more than 50 amicus curiae reports, reflecting widespread concerns across the financial and crypto sectors.
Unique risks
The letter states that the CAT poses unique risks to digital asset transactions. The SEC’s position that many digital asset market participants qualify as exchanges, brokers or dealers could subject these entities to the CAT’s extensive reporting requirements.
This could lead to the linking of personally identifiable information to blockchain wallet addresses, exposing users’ transaction histories to unprecedented scrutiny. Such a prospect has raised alarms about the potential overreach and erosion of financial privacy.
Laura Sanders, policy advisor at the Blockchain Association, highlighted the broader implications of the CAT, stating:
“The CAT program’s sweeping surveillance of personal financial data, including potentially sensitive blockchain transactions, is a significant overreach that threatens to normalize invasive government surveillance.”
Furthermore, the broad scope of the CAT also poses significant safety concerns. With sensitive data from millions of transactions centralized in one database, the CAT could become a prime target for cyber attacks.
This risk is compounded by the number of individuals who have access to the system, further increasing fears of data breaches that could compromise both traditional financial data and blockchain transaction data.
