The United States Securities and Exchange Commission (SEC) on Thursday announced that it has set its eyes on audit firms working for cryptocurrency companies.
According to reports by the Wall Street Journal (WSJ), the SEC has said it will increase scrutiny of audit firms producing audit reports for crypto companies. The regulatory body explained that it needs to follow this course of action as concerns have arisen that investors are getting false reassurance from auditing reports and are risking exposure to cryptocurrencies. Many crypto firms have had to publish reports on the state of their reserves as the contagion from the bankruptcy of FTX continues to spread. Several crypto exchanges proposed to release proof-of-reserves to offer customers reassurance that their funds are safe and to prove that the firm is financially healthy and stable.
The SEC’s Acting Chief Accountant Paul Munter told the WSJ:
We’re warning investors to be very wary of some of the claims that are being made by crypto companies.
SEC Heightens its Scrutiny of Audit Reports
The SEC holds by its anti-crypto stance and has systematically increased its monitoring of companies involved with digital assets as the industry continues to grow. As crypto firms now are being forced to reveal the state of their finances, the SEC has decided to look more closely at how cryptocurrency firms portray their reports from audit firms. As regulatory pressure surrounding cryptocurrencies remains a grey area, banks and auditing firms have been reluctant to work with crypto firms.
The most recent example of this saw France-based firm Mazars temporarily suspend its auditing services to Binance, Crypto.com, and KuCoin. Mazars even went as far as to remove the link to Binance’s proof-of-reserve assessment from its website after it found the exchange’s Bitcoin reserves to be overcollateralized. Bloomberg was the first to report that Mazars had suspended its services to the aforementioned crypto firms and further reported that other auditing firms such as FTX’s auditor Armanino also halted their work with crypto exchanges such as OKX and Gate.io.
The SEC is for this reason sending warnings to audit firms working on crypto audits as it believes crypto exchanges are using proof-of-reserve reports from audit firms for their benefit. The danger in this the SEC believes is that it contains limited financial details to assess whether a company does have sufficient assets to cover its liabilities.
Gary Gensler: Investors Remain Exposed to Crypto Risks
Chair of the SEC, Gary Gensler, stated investors remain exposed to the risks surrounding the crypto industry until these firms comply with time-tested securities laws. Gensler was speaking in response to the agency’s charges of fraud against former Alameda Research CEO Caroline Ellison and FTX co-founder Gary Wang. Gensler added that it remains a priority for the agency to use all tools at its disposal to bring the cryptocurrency industry into compliance.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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