The US Securities and Exchange Commission (SEC) is increasingly questioning the authenticity of audits conducted for cryptocurrency companies. After FTX’s collapse, several cryptocurrency firms have been trying to show that they still hold onto the assets of their users. Many people are looking for auditing companies to give their clients and potential investors third-party assurances.
The SEC asked investors to exercise caution when using these proof-of-reserve filings, claiming they lack sufficient information. According to the SEC, some of these filings omit important financial data, despite companies complaining that doing so violates their confidentiality.
Paul Munter, the interim chief accountant, claims that the SEC is closely examining how cryptocurrency companies are presenting these audit reports. According to Munter, they are becoming more aware of what’s happening in the industry. They will consider making a reference to the division of enforcement if they discover actual patterns that they believe to be problematic.
“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 division of enforcement.”
However, ,many companies do not fall within the purview of the SEC,since many of them have foreign headquarters. As a result, the SEC is essentially issuing a warning about jeopardizing the reputations of auditing firms as well as investors.
Insurance companies are either denying or significantly limiting coverage for clients connected to cryptocurrency as a result of the fall of the crypto exchange FTX.
Due to patchy regulations and fluctuating crypto prices, insurance companies also are reluctant to provide coverage to cryptocurrency businesses. Fewer companies will now be prepared to insure asset and directors and officers (D&O) protection policies for these firms in light of the FTX bankruptcy. D&O insurance coverage is often used to pay for legal costs in the case of a lawsuit.
According to reports, the Big Four accounting firms said they were “now unwilling” to conduct an audit for a private cryptocurrency company. While these companies have said they won’t take on any more of this type of work, they haven’t said if they would cease catering to cryptocurrency users. For example, Deloitte and Coinbase, an American cryptocurrency exchange, have a long history together.