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| US SEC wants crypto companies to disclose all risks to users |
US-listed companies that act as custodians of cryptocurrencies on behalf of their users should account for those assets as liabilities and warn investors about the associated risk, the US Securities and Exchange Commission (SEC) has said in a newly published staff accounting bulletin. The new guidance which is aimed at particularly highlighting potential risks of crypto-related investments to customers will apply to traditional firms such as banks or retail brokers that custody cryptocurrencies for their clients or provide other related services, as well as to crypto exchanges.
In a new accounting bulletin, the SEC said that the arrangements associated with digital currencies, such as the requirement to maintain the private keys to access the funds, “involve unique risks and uncertainties”.
Those risks are different from the risks associated with the arrangements performed to safeguard traditional assets, and include technological, legal, and regulatory risks and uncertainties. "There are significantly fewer regulatory requirements for holding crypto assets," compared to traditional financial assets,” the SEC said.
The agency added that companies that custody crypto "may not be complying with regulatory requirements that do apply, which results in increased risks to investors in these entities.” Since these risks can have a "significant impact" on companies' operations and financial conditions, companies should clearly disclose "the nature and amount" of crypto assets they are holding. Each “significant” crypto-asset should be accounted for at "fair value" and have separate disclosures, along with any vulnerabilities resulting from such activities, the SEC says.
The SEC also added that disclosures regarding the significant risks and uncertainties associated with holding users' crypto-assets "may also be required outside the financial statements”. Although not stated, these may include the description of business, risk factors, or management's discussion and analysis of financial condition and results of operation.
Although it has announced its intention not to ban cryptocurrency attempts in the US, the SEC is a strong supporter of applying comprehensive regulation to the industry.
Earlier this year, Gary Gensler – the current SEC Chairman – opined that US federal regulators should directly oversee crypto exchanges. According to him, such an initiative should take place in 2022 to grant investors stronger protection when dealing with cryptocurrencies.
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