Continuing on its crypto cautious approach, the United States Securities and Exchange Commission (SEC) has again taken a step against the industry. This time, the regulator has reached out to accounting firms warning them of the potential risks and threat in the crypto industry.
On Thursday, the SEC sent out a strict warning to accounting firms highlighting the potential risks and liabilities of serving clients in the growing crypto industry. The regulator aims to enhance investor protection amid the growing threat from crypto entities.
Paul Munter, Chief Accountant to the SEC, said that many crypto firms have wrongly stated that certain non-audit work is equivalent to an audit. He explained that accounting firms could be held responsible for their own statements and any incorrect statements made by their clients. Munter wrote in his statement:
Clients’ marketing and terminology risks misleadingly suggesting that these alternative, non-audit arrangements are at parity with, or even more “precise” than, a financial statement audit. Such suggestions are false.
Explaining about the requirements of these reminders, Munter stated that there are a “variety of facts and circumstances” under which auditing firms could be liable for violating anti-fraud provisions of securities regulation. He also warned that such violations could cause the accounting firm and its members to be censured, reprimanded, or even suspended from appearing or practicing before the agency.
According to Munter, Office of the Chief Accountant (OCA) staff believe that accounting firms should make a “noisy withdrawal.” This phrase is to reflect breaking ties with dishonest crypto clients by making a public statement or informing the SEC.
Adding on his suggestions, Munter said that auditing firms should carefully assess risks before taking on crypto clients. These firms should also take precautions with existing clients that move into cryptocurrency, and set rules for how clients can describe their relationship with the auditor.
Notably, this notice stands relevant considering that accounting firms broke ties with the crypto sector in late 2022. Reportedly, auditing firm, Armanino and Mazars dropped crypto companies as clients in December. Simultaneously, Binance was unable to secure audits from the “Big Four” accounting firms, though some of those firms provide such services.
While some anticipate that these actions were driven by the collapse of FTX and some other banking institutions with crypto exposure which sent shockwaves through the crypto industry. However, it is unclear what developments could have prompted the SEC’s latest warning.
Moreover, the SEC has been enhancing its crackdown on the crypto industry recently as evident from the proposed regulation as well as its enforcement actions. As reported by Todayq News, the SEC proposed new tougher rules on the bad actors of the online world.
Under the new rules, all registrants including crypto firms will have to be more forthcoming about cyber breaches they undergo. Also, this is not the first time SEC has been explicit about warning against crypto. In a notice from March, the SEC warned crypto investments can be volatile and speculative, and the platforms where investors buy, sell, borrow, or lend these securities may lack protections for investors.