According to recent developments, On Thursday, a senior official at the U.S. Securities and Exchange Commission (SEC) told the Wall Street Journal that the agency is increasing its scrutiny of the work audit firms conduct for cryptocurrency businesses. Acting SEC Chief Accountant Paul Munter told the journal that the agency is alerting investors to be wary of claims made by cryptocurrency companies.
Efforts of a response from the SEC received a cold shoulder. On the other hand, the fall of FTX amid its bankruptcy rumors sparked has sent shockwaves across the sector, stifling liquidity at companies that had exposure to what used to be the largest cryptocurrency exchange in the world. This has sparked probes by authorities in many countries.
After rival exchange Binance backed out of a potential takeover last month, FTX founder and CEO Sam Bankman-Fried opted for U.S. bankruptcy protection. Since the FTX collapse, several cryptocurrency companies have been preparing for the impact, with many having millions of dollars in exposure to the troubled exchange.
As a result of the increased attention, at least one audit company has decided to stop working with cryptocurrency firms. This happened immediately after the firm had completed its audit of the company’s assets and liabilities. Companies dealing in crypto are anxious to get an auditor’s approval to calm their wary clientele’s fears.
The SEC has an eye on Proof of ReservesÂ
According to Mr. Munter, the Wall Street regulator scrutinizes how cryptocurrency businesses provide audit firm results. The SEC is especially concerned with reports that purport to demonstrate that a cryptocurrency firm has enough assets to cover consumers’ money, known as proof-of-reserves reports.
Leading cryptocurrency exchange Binance displayed its independently certified audited evidence of reserves in December. This evidence was validated by the audit firm Mazars. However, the study only provided a few financial details, and Mazars made no declaration of bias.
Last week, Mazars stopped working on proof-of-reserves cryptography and removed the reports’ digital versions from its website. Other audit firms, such as Marcum LLP and BDO, have also reviewed and revised their work with cryptocurrency businesses to avoid litigation, reputational harm, and increased regulatory attention.
