By Michael Scott
SEC penned a letter to all public companies directing them to update disclosure obligations. Besides, the letter urges public companies to disclose the recent crypto bankruptcy wave’s impact on their businesses. In addition, the letter obligates public companies to disclose the disruption suffered by their businesses following the financial distress witnessed across the digital asset space.
Objective of SEC’s Letter
The letter penned by the Gary Gensler-led SEC aims to demonstrate the comments the watchdog agency may convey to public entities. Echoing the letter’s directive, a spokesperson from the corporate finance division clarified that companies should capture the impact of the crypto asset market. SEC explained that the crypto-related information should be alongside other disclosure obligations, including risk factors, management analysis, and business overview.
The sample letter provided by the SEC directed the companies to disclose their business links with bankrupt crypto firms. Further, SEC asks for disclosure obligations revealing relationships with firms that experienced bank runs, unaccounted crypto assets, and material noncompliance.
Implementing Regulatory Oversight
Gensler dismissed the call for tailored cryptocurrency rules indicating that SEC will enforce the existing laws. He noted that the SEC had utilized the existing laws to initiate 100 enforcement actions in cases where the crypto firms violated the legislation. Gensler added that SEC had imposed a dozen enforcement actions under his current tenure.
Gensler rallied the crypto assets and services operators to embrace compliance. He warned that the crypto space would hardly operate while violating public policy norms.
The SEC letter requested companies to disclose the current measures undertaken to safeguard customers’ crypto assets. Furthermore, Gensler asked crypto firms to come clean on the governance protocols they deployed to avert conflicts of interest, as observed in the FTX downfall.
Way Forward
The agency encouraged crypto firms to initiate conversations on the effect of market conditions on their business perception. Moreover, the letter challenged companies to disclose how crypto regulation could influence business and financial conditions.
In particular, SEC requires companies to indicate the crypto regulation impact on the share price, debt financing, demand, and legal proceedings.
SEC’s letter to the publicly listed companies is timely given the wave of financial contagion from FTX collapse from an apparent failure to comply with corporate controls.