Crypto platforms like Coinbase and other companies that trade digital currencies should include tokens they hold for clients as assets and liabilities on their own balance sheets and inform the public about the potential risks of investments, according to the SEC’s updated guidance.
The directive emerged as federal agencies considered more regulation of cryptocurrencies and pushed for more transparency about how platforms work to protect consumers.
Investors are pouring money into bitcoin and other digital assets at a rapid pace, pushing the global crypto market cap past $2 trillion.
The SEC Guide instructed cryptocurrency platforms, banks and other financial institutions to recognize the tokens they hold on behalf of customers as assets and to include their obligation to keep the stashes as liabilities starting in June.
Under previous policies, customer inventories were taken off the platforms’ balance sheets – a practice that reflected how publicly traded brokers functioned. The SEC said that “uncertainties” specific to the largely unregulated crypto space — such as how assets are handled in the event of fraud, theft, or bankruptcy — require special care.
“The technological mechanisms supporting how crypto assets are issued, held or transferred, as well as legal uncertainties related to holding crypto assets for others, create significantly increased risks…including an increased risk of financial loss,” the SEC said in a press release.
The change will have a significant impact on financial disclosures and accounting practices for major publicly traded platforms.
For example, Coinbase reported $21.3 billion in assets and liabilities at the end of 2021, despite holding $278 billion worth of cryptocurrencies and other currencies on behalf of its customers. The Wall Street Journal reported.
Lawmakers and federal officials have increasingly expressed concerns that crypto investing poses a risk to the public given the lack of clear guidelines or oversight.
“Right now, we just don’t have enough investor protections in crypto finance, issuance, trading or lending,” SEC Chairman Gary Gensler said in prepared observations before the Senate Banking Committee last September. “Honestly, at this point, it’s more like the Wild West or the old world of ‘buyer caution’ that existed before the securities laws were enacted.”
Hackers pose another risk for crypto investors. Earlier this week, hackers stole $615 million worth of crypto from blockchain project Ronin in one of the biggest thefts of all time.
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https://nypost.com/2022/04/01/sec-says-crypto-platforms-should-treat-customer-stashes-as-own-assets-liabilities/ SEC Says Crypto Platforms Should Treat Client Hideouts as Own Assets, Liabilities