- The SEC issued a guideline mandating companies to disclose to investors their exposure to potential risk.
- The advice was released approximately a month after FTX declared bankruptcy.
- The exchange’s failure has affected more than 100,000 customers.
In a new guidance published on Thursday, the Securities and Exchange Commission (SEC) mandates companies that issue securities to disclose to investors their vulnerability to potential risk in the crypto market.
The advice was released approximately a month after FTX, one of the biggest crypto exchanges in the world, declared bankruptcy after lending customer assets to a trading firm established by Sam Bankman-Fried. The exchange’s failure has affected more than 100,000 customers.
The guidance letter serves as an example of the kind of comments that a securities regulator might make to publicly traded corporations.
The SEC’s corporate finance division said in its release:
In meeting their disclosure obligations, companies should consider the need to address crypto asset market developments in their filings generally, including in their business descriptions, risk factors, and management’s discussion and analysis.
According to the letter, the government demands that businesses report their connections to other businesses that have gone bankrupt, had excessive redemptions, had crypto assets that are unaccounted for, or had serious corporate compliance violations.
Earlier this week, Gary Gensler, the chairman of the SEC, rejected claims that the organization had failed to stop crypto firms from misusing customers’ money. Additionally, Gensler stated that if the firms disregard current regulations, the SEC will take additional enforcement measures.
Subsequently, following the circumstances surrounding FTX’s demise, BlockFi, a lender for cryptocurrency, has also filed for bankruptcy. Other lenders, like Genesis Trading’s lending section and the cryptocurrency exchange Gemini, have halted withdrawals and started to organize as creditors.
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