SEC Released New Advising Guideline for Companies

The SEC released a guideline on Thursday that advises companies to disclose their role with digital commodities companies.

SEC Released New Guidance

On Thursday, the Securities and Exchange Commission (SEC) released new guidance. Which says the companies that issue securities need to disclose to investors their exposure along with the risk to the cryptocurrency market.

The following guidance came just a day after SEC Chair Gary Gensler defended the agency from claims that it failed to prevent crypto firms from misusing customer funds. Now, the companies need to describe any risks or material exposures related to crypto assets.

It can be seen that the new SEC guidance comes a month after the fallout of the world’s largest crypto exchange, FTX. The exchange filed for Chapter 11 bankruptcy. Then it loan customer funds to a risky trading firm, Alameda Research founded by its former CEO, Sam Bankman-Fried. The fall of FTX nearly affected more than 100,000 customers.

The Sample Letter

The Division of Corporation Finance of the SEC developed a sample letter after a selective review of findings made under the Securities Act of 1933 and the Securities Exchange Act of 1934.

The SEC guidance directs companies 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.”

The proposed details in the letter further asks the issuer to depict how company bankruptcies and subsequent effects “have impacted or may impact your business, financial condition, customers, and counterparties, either directly or indirectly.”

Another asked for a description of “any material risk to you, either direct or indirect, due to excessive redemptions, withdrawals, or a suspension of redemptions or withdrawals, of crypto assets. Identify any material concentrations of risk and quantify any material exposures.”

Additionally, the corporate finance division of SEC urged companies to adopt all the recommendations. They have developed documents “that may not typically be subject to review by the Division before their use.”

While concluding it can be noted that the new SEC guidance suggested to the companies that in their public filings, the companies will have to include crypto asset holdings. As well as their risk exposure to the FTX bankruptcy and other market developments. The company’s bankruptcy filings indicate the company has more than 1 Million creditors.

On this Wednesday, SEC Chair Gary Gensler fended off accusations as the agency has failed to prevent crypto firms from misusing customer funds. The SEC Chair said the SEC would take more enforcement actions if the firms fail to follow existing rules.

Andrew is a blockchain developer who developed his interest in cryptocurrencies while his post-graduation. He is a keen observer of details and shares his passion for writing along with being a developer. His backend knowledge about blockchain helps him give a unique perspective to his writing