Key takeaways:
- In response to the “widespread disruption” in the cryptocurrency markets, the SEC writes to businesses instructing revised disclosure of information.
- The letter serves as an example of the kind of remarks that a securities agency might make to publicly traded companies.
In an official directive published on Thursday, the Securities and Exchange Commission mandates that companies that issue securities publicise to investors their exposure to and vulnerability in the cryptocurrency industry.
This guidance comes as subsequent bankruptcies and economic hardships among major market players in the crypto asset markets have induced extensive damage in those markets.
According to the SEC, businesses may be required to disclose their business’s direct or indirect effects, as well as any collateral effects, under the securities laws.
The regulations, which are listed in a sample letter, cover more than just the quantity of cryptocurrencies listed on the balance sheet.
Instructions on exposure to third-party crypto market players, dangers pertaining to companies’ liquidity, their capacity to raise capital, and risks relating to “judicial proceedings, interrogations, or regulatory impacts” within the crypto markets are also included in the letter.
In the guidelines, the division stated that businesses may be obliged to reveal more details in documents filed made under the Securities Act of 1933 and the Securities Exchange Act of 1934 than that which is explicitly considered necessary to be included in declarations or reports, if refusing to release that information would make the other data misguiding.
The issuer is asked to explain how corporation insolvencies and their consequences have hindered or may impact your business, economic position, clients, and counterparties, whether explicitly or implicitly, according to a recommended item in the letter.
A second inquiry seeks an explanation of “any material risk to you, either direct or indirect“, resulting from elevated redemptions, withdrawal of funds, or a revocation of redemptions or withdrawals of crypto assets. Accurately measure any material risks and recognise any material concentrations of threat.
The instruction stated that “the sample remarks do not approach an extensive list of the concerns that businesses must follow.” Companies should always assess whether they have already encountered or may soon experience issues that are categorised as possible dangers and, if so, update their revelations in line with that evaluation.
Firms are encouraged to follow these suggestions as they create documents “that may not traditionally be subject to scrutiny by the Department before their use,” according to the corporate finance division of the SEC.
