SEC Wants US Companies to Disclose Their Crypto Involvements Citing Disruption in the Markets

The SEC emphasized that firms must disclose their crypto involvements to their investors per federal securities laws.

Gary Gensler CEO of SEC
  • Recent developments heightened the call for transparency and disclosure obligations, especially for crypto firms.
  • In a guidance released on December 8, the SEC affirmed firms have a duty to disclose their cryptocurrency investment information to investors.
  • US regulator shared a sample letter for firms to use when making disclosures. 
  • Companies need to disclose their direct or indirect exposure to counterparties, customers, or custodians.
  • The SEC also listed several risk factors that firms must disclose to their clients.

Amid controversies surrounding the financial downfall of FTX, the US Securities and Exchange Commission (SEC) has directed firms that have disclosure obligations under federal securities laws within the country to keep investors informed of their various exposures to cryptocurrencies and related risks at all times. 

In a December 8 guidance, the regulator affirmed these firms’ obligation to disclose the information to their investors in line with federal securities laws.


The US regulator shared a sample letter as a suggestion to firms on how to make the disclosure. According to the letter, companies need to disclose their direct or indirect exposure to counterparties, customers, custodians, or other participants in crypto markets who:

  • Have filed for bankruptcy, been decreed insolvent or bankrupt, made any assignment for creditors’ benefit, or had a receiver appointed for them.
  • Have experienced excessive redemptions or suspended redemptions or withdrawals of crypto assets.
  • Have the crypto assets of their customers unaccounted for.
  • Have experienced material and corporate compliance failures.

Additionally, firms must describe policies and procedures to prevent self-dealing and other potential conflicts of interest to safeguard their customers’ crypto assets. 

If crypto assets are involved, the agency asked the firms to explain whether they serve as collateral for any loans, margins, or similar activities.  In such cases, firms need to identify and quantify the crypto assets used in the financing and their relationship with lenders other than third parties.

Furthermore, the SEC also listed several risk factors that firms must disclose to their customers.


Backing the legality of these disclosure obligations, the SEC referenced the 1933 securities act, which mandates firms to make certain disclosures in the interest of their investors. 

According to the regulator, the letter doesn’t cover all the important issues a company needs to consider.

Call for Transparency and Disclosure Obligations

Recall that the collapse of FTX, a popular crypto exchange, has continued to impact the industry. As of press time, more than five crypto firms, including BlockFi and Galaxy Digital, have degrees of exposure to the troubled exchange, thereby impacting their operations. 

"Recent bankruptcies and financial distress among crypto asset market participants have caused widespread disruption in those markets. Companies may have disclosure obligations under the federal securities laws related to the direct or indirect impact that these events and collateral events have had or may have on their business," SEC said.

Notably, recent developments heightened the call for transparency and disclosure obligations, particularly by crypto firms exposing their investors’ assets to risks enveloped in the industry. It is believed that this will help protect investors.

On the Flipside

  • Cryptocurrencies are challenging to regulate in the US because there is no single federal regulatory agency. However, the SEC’s recent actions in the wake of the market crash indicate that the organization may have an edge in establishing itself as an authorized body in the crypto space. Further, the crypto bill led by Congresswoman Elizabeth Warren suggests the same idea.

Why You Should Care

Currently, the crypto space is plagued by fears as firms file for bankruptcy, causing people to lose money. This has caused many to lose confidence in the crypto space. Friendly regulations and transparency improvements will help the space regain lost trust and attract more users.

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.

Soumen Datta

Soumen has been a dedicated researcher and writer in the field of cryptocurrencies for the last few years. Even though Indian crypto regulations are still unclear, he believes that India will continue to innovate in the years to come. He loves to play his guitar and sing along in his spare time. He holds bags mostly in BTC, ETH, BNB, MATIC, ADA.