Crypto companies hit with U.S SEC guidelines letter

Posted by Matthew Calleja Posted: Dec 09, 2022

There is no doubt of the disruption that has occurred in the crypto asset markets during the past few months. Noting it to be primarily a result of recent bankruptcies and financial suffering caused by ongoing bear markets and recent scandals, the U.S. Securities and Exchange Commission (SEC) issued a letter with guidelines to crypto companies on Thursday.

U.S SEC advises Crypto companies of their burden of transparency

The SEC’s Division of Corporation Finance advised crypto companies in a letter to ensure adequate transparency to investors, with information that is both specific and tailored to their needs. This information can include market events and conditions, the company’s situation in relation to those events and conditions, and the potential impact on investors.

The SEC’s Division of Corporation Finance monitors and improves disclosure compliance. It conducts random and selective reviews of filings made under the Securities Act of 1933 and the Securities Exchange Act of 1934.

The letter provided guidance to businesses on how to fulfil these duties by discussing the need of transparently disclosing the major consequences of changes in the crypto asset market. The feedback was organised into several sections, the most of which were devoted to potential dangers.

Furthermore, crypto companies “ought to share 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.”

The letter provided guidance to businesses on how to fulfil these duties. It spotlighted the need for transparency regarding major consequences of changes in the crypto asset market. The feedback was organised into several sections, with most comments falling under “Risk Factors.” For example, “11. Describe any material risks to your business from the possibility of regulatory developments related to crypto assets and crypto asset markets […]”. Also, “13. Describe any material risks related to safeguarding your, your affiliates’, or your customers’ crypto assets […]”

Among the market developments listed in the letter were exposure to counterparties and other market players. Risks were linked to liquidity and capacity to get financing, as well as possible legal actions, investigations, or regulatory repercussions in the crypto asset markets.

The topics that should be in the business’ consideration go beyond what is included in the example remarks. As is customary, businesses need to assess whether they have been or may be impacted by possible hazards, and if so, revise their disclosures as necessary.