SEC Increases Scrutiny of Crypto Audits After Binance Auditor Leaves Industry

SEC is looking into claims made by crypto companies about their financial audit reports.

Gary Gensler in front of stacks of documents
  • SEC says investors shouldn’t place too much confidence in crypto audits
  • Earlier, Binance’s auditor Mazars announced leaving the crypto space
  • SEC is becoming more hawkish on crypto in general

Binance’s recent audit left many investors unimpressed. Their concerns grew even more once the auditing firm suspended crypto audits shortly thereafter. Now, the SEC is getting involved.

The Securities and Exchange Commission (SEC) is stepping up scrutiny over audits the crypto companies are getting. The move comes after Binance’s auditor Mazars announced its departure from the sector earlier this week.

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“We’re warning investors to be very wary of some of the claims that are being made by crypto companies,” said Paul Munter, the SEC’s acting chief accountant.

After the collapse of the crypto exchange FTX, crypto companies are eager to take any step to reassure their customers. However, these audits often leave much to be desired in terms of transparency.

“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,” Munter said.

These reports don’t provide investors with information to assess whether crypto firms can cover their liabilities, he added.

Mazars’ report of Binance’s reserves left many investors with more questions than answers. Moreover, the auditing firm said it was not expressing an opinion about whether Binance actually has enough reserves. These concerns only compounded once Mazars said it would no longer work with crypto clients.

Audits of other crypto companies are even less transparent. Earlier, Mazars’ report of Crypto.com reserves did not even disclose the nominal amount of reserves. Instead, they just published ratios in percentage terms.

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The SEC is also becoming more hawkish in general when it comes to crypto. In a complaint against Sam Bankman-Fried’s co-conspirators filed on Wednesday, the regulator called FTX token (FTT) a security.

On the Flipside

  • While some traders may believe this news is bearish for crypto, it could have positive long-term trends. Transparency is one of the fundamental values of the crypto space. It is unclear why centralized entities in crypto should get a pass on that requirement.

Why You Should Care

The SEC’s new stance on crypto assets and audits could have significant implications for the industry. It might help push the sector in a more transparent and decentralized direction. On the flip side, it might cause serious disruption in the short run, as confidence in centralized exchanges continues to fall.  

This article is for information purposes only and should not be considered trading or investment advice. Nothing herein shall be construed as financial, legal, or tax advice. Trading forex, cryptocurrencies, and CFDs pose a considerable risk of loss.

Author
David Marsanic

David Marsanic is a journalist for DailyCoin who covers the intersection of crypto, traditional finance, and government. He focuses on institutionalized crypto entities like major cryptocurrency exchanges and Solana, breaking down complex topics into easy-to-understand writing. David's prior experience as a business journalist at various crypto and traditional news sites has enabled him to maintain a critical approach to news while adhering to high journalistic integrity standards.