The United States Securities and Exchange Commission (SEC) has reportedly heightened regulations on auditing firms’ work for cryptocurrency companies.
The move aims to protect investors who may be misled by the reports presented by the auditors for digital assets service providers (DASP) as part of an ongoing restructuring plan after the FTX debacle last month, which wiped out billions of dollars from the industry.
Regaining Customer Trust
Following the FTX implosion, exchanges began an initiative to perform a Merkel tree proof-of-reserve (PoR) report to assure users that they have sufficient funds to cover customers’ assets in the face of financial emergencies such as bankruptcy.
Companies such as Binance, CryptoCom, Bybit, and OKX have released their separate PoR reports, showing over-collateralized assets. Despite the proof, the SEC is concerned that users may be getting false reassurances from the auditors.
In an interview with the Wall Street Journal on Thursday, Paul Munter, the SEC’s acting chief accountant, cautioned investors regarding some claims made by crypto companies, referring to the PoR reports.
Munter further disclosed that the SEC has taken a particular interest in the crypto market and would report any anomalies poised to threaten the market stability to the SEC’s enforcement units.
“We are increasing our understanding of what’s going on in the marketplace. If we find fact patterns that we think are troublesome, we will consider a referral to the enforcement division,” said Munter.
Auditing Firm Fires Crypto Customers
In addition to watching out for fact patterns, the SEC closely monitors how crypto companies are portraying the reports from the financial auditors. During the interview, the SEC’s acting chief accountant said that many firms operate offshore and are unlikely to be policed under its jurisdiction.
The market watchdog is effectively warning audit firms that don’t want to run afoul of their regulators and putting investors on alert.
Due to tightened scrutiny, at least one auditing firm has shut its doors against crypto companies, said the report.
On December 16, Mazars, one of the largest accounting firms which audited Binance and CryptoCom PoR, suspended all its services from crypto firms.
The company noted that the reports it provided for these exchanges had failed to quench investor concerns regarding the safety of their funds. The accounting firm also cited media attention as part of its reasons for discontinuing services for crypto firms.
