Firms to Disclose Their Crypto Exposure to SEC

Companies need to disclose all of their crypto exposure, including investments and partnerships with crypto firms, to the SEC.

Companies that have any kind of exposure to crypto assets, including doing business with crypto-related companies, are required by the U.S. Securities and Exchange Commission to make such information public. 

In addition, businesses must detail how client crypto assets were protected and how company closures impacted their operations, as per a Dec. 8 guidance.

If a company has any connection, however remote, to another firm that has gone bankrupt, seen large-scale cash withdrawals or withdrawals of crypto assets, has client crypto assets that haven’t been properly accounted for, or has had corporate compliance issues, then it must reveal such ties.

The agency’s guidelines states: 

“In meeting their disclosure obligations, companies should consider the need to address crypto asset market developments in their filings generally, including in their business descriptions, risk factors, and management’s discussion and analysis.”

Following FTX’s demise, concerns about financial contagion in crypto markets and heightened monitoring by the SEC have led to this announcement. 

Guidance will be published on an SEC website “and is intended to be illustrative of the types of comments we might send to public company issuers if/when applicable,” a representative for the agency told The Block.

Crypto Firms Push For PoR Audits

In light of recent occurrences, the concept of proof-of-reserves (PoR) has gained significant attention as a means to increase transparency by making information formerly kept under wraps available to the public. 

The exchanges are competing to show their users that the assets traded on their platform are secure in order to attract and retain customers. To validate a user’s balance, Binance recently introduced a proof-of-reserves mechanism based on a Merkle tree.

However, Kraken CEO Jesse Powell said it was a letdown that Binance’s PoR didn’t include negative balances. 

Instead, he warned journalists not to “oversell it and mislead consumers.” Powell acknowledges that Kraken’s proof of reserve does allow for a comparison of the company’s assets and liabilities, but he continues to deride competitors who did not list accounts with negative balances.