Takeaways
- Crypto exchanges and crypto custodians should be transparent about how many digital assets are held by them and what they do with those digital assets.
- SEC commissioner Hester Pierce stated that the SEC staff bulletin was a “scattershot and inefficient approach” Cryptography
US Securities and Exchange Commission members published a report on Thursday highlighting what they deem to be the most problematic accounting practices in the crypto sector.
Staff at the SEC said that they believe entities should include a liability in their balance sheet, to show their responsibility to protect digital assets for platform users.
Staff Accounting Bulletin number 121 (SAB 121) expresses and adds to the opinions of employees. “interpretive” Guide for organizations to use when they are required to protect digital assets.
Entities such as crypto exchanges and custodians — who are charged with maintaining cryptographic keys of their users — face several risks when storing digital assets on behalf of their customers, SEC staff said.
Commentary from SEC staff follows one of the industry’s largest hacks in history, when an Ethereum-linked sidechain — utilized by blockchain game Axie Infinity — was exploited for $625 million in ether and USDC last week. On March 23, exploiters used stolen private keys to forged withdrawals.
“The obligations associated with these arrangements involve unique risks and uncertainties not present in arrangements to safeguard assets that are not crypto-assets.” These legal, regulatory and technological risks may have an adverse impact on your business. “significant impact” They said that they would report on the financial and operational condition of their entity.
Staff accounting bulletins do not represent SEC rules and interpretations, but rather the interpretations or practices of staff in accordance with federal securities law.
Staff believes that notes to financial statements should be included “clear disclosure” The amount and type of cryptocurrency that an entity holds on behalf of users.
The staff also guides entities in forming separate disclosures of each important crypto asset, as well as notifying SEC about any vulnerability they might have. “any concentration in such activities.”
SEC Commissioner Hester Hester Pierce is affectionately called “Crypto Mom” The staff bulletin was referred to as a “falsehood” by some in the community on Thursday. “scattershot and inefficient approach to crypto.”
“My concern is not with the accounting determination itself, which may be appropriate, but with the way the change is being made,” Pierce said.
“A staff accounting bulletin may not be the appropriate vehicle through which to make this accounting change and communicate it to the public.”
Pierce said that SAB 121 was also “unusual” It is unique among bulletins due to its specific guidance. “very specific, very limited” Number of Public Companies
“While past SABs have included statements suggesting companies should consider the applicability of other disclosure requirements outside of the financial statements, SAB 121’s granular guidance is unique,” Pierce said. “If we are trying to encourage companies to enter our public markets, we ought to embrace a more deliberate approach to changing rules — one that involves consulting with affected parties.”
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