Cryptocurrency market has been through a tough phase during the whole year where the fall of many prominent companies only made it worse. Financial regulators were expected to step-in and make efforts to ensure the investors protection and scrutiny over crypto firms tightened. Now the SEC is reported to push the inspection to a more advanced level.
Recently the Wall Street Journal reported that the United States Securities and Exchange Commission (SEC) is now ready to extend its scrutiny of crypto companies’ audits. The move was said to come in the wake of warning investors who were satisfied and assured by the proof of reserves reports presented by the crypto exchanges.
The report cited acting chief accountant of SEC, Paul Munter who said during an interview that just because a company agrees that an audit firm prepared a report of its proof of reserves (PoR), this should not bring confidence in investors. Such a PoR report might not be trusted and could not be enough information that an investor relies upon for the assessment of a company’s available funds or its assets more than its liabilities.
In the wake of the recent fall of once leading crypto exchange FTX, other exchanges responded quickly to regain the slowly losing user trust. Such firms made an announcement to publish proof of reserves reports to ensure transparency with their customers. The Merkle tree proof of reserves remained among the prominent methods which consists of a cryptographic data structure. The structure is such that it maintains privacy while enabling users to check on their holdings’ stability over the exchange platform.
The SEC official said the agency has put warnings for both investors in contact with crypto exchanges and audit firms that in case of finding inconvenient fact patterns, it would refer to the enforcement division.
The development is significant because there have been concerns about Binance, the largest cryptocurrency exchange by trading volume, which did publish a report of its proof of reserves but withdrew it two days later when the auditing company it had hired, Mazars, announced it would no longer be working with crypto companies.
Following Mazars halting the audits of crypto firms like the leading crypto exchange, the latter went on to look for other potential candidates. Binance was reported to reach out to the prominent players within the space including Deloitte and KPMG. Although these firms were said to not willing to conduct a proof of reserves of any private crypto firm.
Source: https://www.thecoinrepublic.com/2022/12/24/sec-official-hints-of-increasing-scrutiny-on-crypto-firm-audits/