SEC Cautions Companies to Disclose Exposure to Crypto Businesses

On Dec. 8, the SEC’s Division of Corporation Finance released a statement “regarding recent developments in crypto-asset markets.”

The guidance has targeted companies that have disclosure obligations under federal securities laws. Citing “widespread disruption” in crypto markets, the regulator said that companies should evaluate their disclosures and update them if crypto is involved.

“In meeting their disclosure obligations, companies should consider the need to address crypto asset market developments in their filings generally, including in their business descriptions, risk factors, and management’s discussion and analysis,”

Furthermore, auditing firms have already upgraded crypto firms to high risk.

SEC: We Want to Know About Your Crypto Involvement

It has been widely predicted that regulators would use the FTX fiasco to crack down on the industry, and the SEC is doing exactly that, portraying the entire industry as overtly risky and dangerous.

The agency harked back to the 1933 securities act, which requires firms to make disclosures in the interests of their investors. With crypto being deemed as the new axis of evil now, it has been added too.

Companies now need to disclose if they have direct or indirect relations with crypto firms that meet the following criteria:

1. Have filed for bankruptcy or been decreed insolvent or bankrupt.
2. Have experienced excessive redemptions or suspended redemptions or withdrawals of crypto assets.
3. Have the crypto assets of their customers unaccounted for.
4. Have experienced material and corporate compliance failures.

Additionally, companies are required to describe any material risks to the business from regulatory developments relating to crypto assets.

The SEC even provided them with a sample letter to use as a template when filing or updating disclosures.

A Shadow Crypto Crackdown

The move may be intended to discourage companies from having any dealings with the crypto industry.

The SEC is clearly gearing up to come down hard on crypto. It does not yet have the authority to fully regulate the sector but is making moves in that direction.

If a regulatory framework in the U.S. grants the SEC full authority over the industry, crypto companies will need to comply with the same laws as stock exchanges and banks. On Dec. 8, the CEO of the Intercontinental Exchange (ICE), Jeffrey Sprecher, agreed that crypto assets should be regulated as securities.

This will effectively make it much harder for retail traders to participate in the markets. It could also result in a mass exodus of fintech firms and innovation from the United States.