The US Securities and Exchange Commission (SEC) will increase scrutiny of audit firms that conduct audits for crypto companies. The SEC expressed concern for investors that they were getting false assurances from audit reports, risking exposure to cryptocurrency risks.
The move comes as several crypto exchanges propose issuing proof of reserves to reassure customers that their funds are safe and that the firm is financially healthy.
The SEC continues to take an anti-crypto stance by increasing monitoring of banking and financial companies that work with crypto companies. Now, the SEC is looking closely at how cryptocurrency companies portray their reports from audit firms.
Banks and auditing firms are reluctant to work with crypto companies due to regulatory pressure from regulators. Increased scrutiny of audit firms has led France-based audit firm Mazars to suspend services for crypto exchanges including Binance, Crypto.com, and other crypto exchanges. The auditing firm even released Binance's proof-of-reserves report from its platform.
"We warn investors to be wary of some of the claims made by crypto companies". statement from acting SEC Chief Accountant Paul Munter.
In response to the agency's fraud charges against former Alameda CEO Caroline Ellison and FTX co-founder Gary Wang, SEC Chairman Gary Gensler stated that investors are exposed to risk until crypto companies can comply with securities laws.
The SEC issued a warning to audit firms conducting crypto audits. Regulators believe crypto exchanges are using proof of reserve reports from audit firms to their advantage. Moreover, it contains only limited financial details to assess whether the company has sufficient assets to cover its liabilities or not.
