U.S. securities regulator asks companies for cryptocurrency disclosure

The U.S. Securities and Exchange Commission (SEC) has issued fresh guidance asking companies that issue securities to disclose to investors their exposure and risk to the cryptocurrency market.

The SEC advisory follows the collapse of FTX, one of the world’s largest cryptocurrency exchanges, which filed for bankruptcy after lending customer funds to a trading company founded by FTX’s former CEO Sam Bankman-Fried.

Over 100,000 customers were impacted by the exchange’s failure.

The SEC has been under fire from investors for not doing due diligence when it comes to cryptocurrency firms using user funds which has prompted it to assure of stricter action if companies fail to comply with existing rules. 

The latest directive asks firms to include crypto asset holdings and risk exposure to the FTX bankruptcy and other market developments in their public filings. FTX is estimated to have over 1 million creditors.

“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,” the SEC’s division of corporate finance said in its release.

In an attached sample letter, the agency asks for companies to disclose their relationship with other firms that have filed for bankruptcy, have experienced excessive redemptions (bank runs), have crypto assets unaccounted for, or experienced “material corporate compliance failures.”

It also encourages companies to share how they safeguard customer crypto assets and what governance protocols they have set in place to prevent conflicts of interest.

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