The United States Securities and Exchange Commission (SEC) has issued new guidelines instructing public companies to disclose to investors their risks or exposure to the recent turmoil in the crypto market.
The guidelines were issued via a sample letter sent to the companies by the SEC’s division of Corporation Finance on Thursday. The division is responsible for overseeing the disclosure practices of registered securities issuers to investors.
Public Companies to Disclose Exposure to Crypto
Under the new guidelines, public companies are required to disclose certain information to investors which include whether they face risk or exposure to counterparties that have filed for bankruptcy or declared insolvent in the crypto sector.
“The Division of Corporation Finance believes that companies should evaluate their disclosures with a view towards providing investors with specific, tailored disclosure about market events and conditions, the company’s situation in relation to those events and conditions, and the potential impact on investors,” the SEC said.
In its letter, the SEC reviewed filings made under the Securities Act of 1933 and the Securities Exchange Act of 1934, which states that companies are required to disclose “such further material information, if any, as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading.”
Part of the letter asked public companies to describe any material risk they face either directly or indirectly due to “excessive redemptions, withdrawals, or a suspension of redemptions or withdrawals, of crypto assets.”
“Companies may have disclosure obligations under the federal securities laws related to the direct or indirect impact that these events and collateral events have had or may have on their business,” the SEC said.
Regulatory Scrutiny Intensifies After FTX’s Fiasco
The development comes after the SEC attracted much criticism from lawmakers over the collapse of the cryptocurrency exchange FTX.
FTX faced a liquidity crisis and filed for bankruptcy last month after its founder and former CEO Sam Bankman-Fried (SBF), allegedly used $4 billion in customer funds on the platform to prop up his trading company, Alameda Research.
Lawmakers believe the securities watchdog would have more to prevent crypto firms such as FTX from mishandling customers’ deposits on their platforms.
