SEC Publishes New Guidance Mandating That Firms Report Cryptocurrency Risk

In new guidelines that have been published, the Securities and Exchange Commission mandates that businesses that offer securities report to investors their potential exposure to hazards in the cryptocurrency market.

The advice was released approximately a month after FTX, one of the biggest cryptocurrency exchanges in the world, declared bankruptcy after lending customer assets to a dangerous trading firm established by Sam Bankman-Fried, the exchange’s former CEO. The failure of the exchange influenced more than 100,000 clients.

SEC Chair Gary Gensler deflected criticism on Wednesday that the organization has not done enough to stop cryptocurrency firms from exploiting client funds. Additionally, Gensler stated that if the firms disregard current regulations, the SEC will take additional enforcement measures.

Companies will now be required to disclose in their public filings their ownership of crypto assets in addition to their perceived risk to the FTX bankruptcy and other market changes. According to the company’s bankruptcy filings, it has more than 1 million creditors.

The Securities Act of 1933 and the Securities Exchange Act of 1934, require corporations to provide “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,” according to the advice, led the SEC’s Division of Corporation Finance to create an example letter.

The issuer is asked to explain how business bankruptcies and their consequences “have impacted or may impact your business, financial condition, customers, and counterparties, either directly or indirectly,” based on a proposed item in the letter. A second inquiry seeks an explanation 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.”

Companies are advised to follow these instructions as they create papers “that may not typically┬ábe subject to review by the Division before their use,” according to the corporate finance division of the SEC.

Information from CNBC

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