Key Points:
The regulator is especially concerned about proof-of-reserves reports, which are meant to demonstrate that the cryptocurrency company has enough assets to cover clients’ payments. In recent weeks, businesses have hurried to generate these reports in an effort to reassure clients alarmed by the failure of the cryptocurrency exchange FTX. They have done this by relying on the reputation of audit firms.
The outcomes of these audits, according to Munter, aren’t always indicative of the company’s financial health. In an interview with The Wall Street Journal, he stated:
“Investors should not place too much confidence in the mere fact a company says it’s got a proof of reserves from an audit firm.”
Having such a report “is not enough information for an investor to assess whether the company has sufficient assets to cover its liabilities,” he added.
“We’re warning investors to be very wary of some of the claims that are being made by crypto companies.”
He continued by saying that these proof-of-reserve filings lack the information necessary for stakeholders to assess the company’s ability to cover its liabilities.
“We are increasing our understanding of what’s going on in the marketplace. If we find fact patterns that we think are troublesome, we will consider a referral to the division of enforcement,” Munter said.
The largest cryptocurrency exchange, Binance, last month displayed what its CEO Changpeng Zhao referred to as audited proof of reserves. According to a spokeswoman for Binance, the audit company Mazars has independently confirmed the proof of reserves. The study provided scant financial details, and Mazars refrained from offering an opinion, so it couldn’t be said that it was endorsing the figures.
Munter also recently gave a speech at the Association of International Certified Professional Accountants Conference in Washington, D.C., on December 12, when he reportedly vented his dissatisfaction over the structure of cryptocurrency organizations, which is always changing.
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Harold
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