The Securities and Exchange Commission (SEC), in a new guideline released on Thursday, requires entities that issue securities to disclose to investors their exposure to possible risk in the cryptocurrency market.
Guide For Crypto Asset Markets
The guideline was made public about a month after FTX, one of the biggest cryptocurrency exchanges in the world, filed for bankruptcy after lending customer assets to a trading company run by Sam Bankman-Fried. More than 100,000 clients were impacted by the exchange’s failure.
The guideline acts as a model for the kinds of remarks that a securities regulator might make to publicly traded companies.
In its release, the SEC’s corporate finance division stated that companies should consider the need to address developments in the crypto asset market in their filings generally, including in their company descriptions, risk factors, and management’s discussion and analysis.
Safeguarding Customer Funds
In accordance with the letter, enterprises must disclose any connections to other companies that have filed for bankruptcy, had a large number of redemptions, had crypto assets that are unaccounted for, or had other major corporate compliance issues.
Gary Gensler, the chairman of the SEC, denied assertions made earlier this week that the body had been unable to prevent cryptocurrency firms from squandering clients’ money. The SEC will take additional enforcement actions, according to Gensler, if the firms disregard the current regulations.
The SEC chairman said on Wednesday In an exclusive interview with Yahoo Finance Live, that the now-bankrupt FTX exchange admitted that it had broken the law by trading with its linked hedge fund, Alameda Research, using customer funds.
He made it clear that securities laws explicitly state that customer funds need to be properly segregated. This was in reaction to some crypto firms that have urged the SEC to maintain their ability to run an exchange, a hedge fund, lend money, and trade securities under one entity, which the agency will not permit.
Gensler’s message to all actors in the finance space is simple, comply or your field will not last long outside of public policy norms.
Following the events surrounding FTX’s downfall, BlockFi, a cryptocurrency lender, has also declared bankruptcy. Other lenders have stopped making withdrawals and have begun to band together as creditors, including the lending section of Genesis Trading and the cryptocurrency exchange Gemini.
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