Crypto: Will Auditing Firms drop support due to SEC Scrutiny?

Sahana Kiran
Source – Unsplash

The fall of several crypto businesses has caused turbulence in the crypto market. Fear was instilled in the community as users felt their funds were unsafe. Amidst this, proof-of-reserves brought about some respite into the community. However now, this could be at risk too.

The Securities and Exchange Commission [SEC] of the United States has had a love-hate relationship with the crypto industry. Once again, the SEC was back alerting investors about proof-of-reserves. During a recent interview, Paul Munter, the acting chief accountant of the SEC suggested that these reports often “lack” adequate details about the firm. Munter said,

“We’re warning investors to be very wary of some of the claims that are being made by crypto companies. 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.”

The FTX debacle urged a streak of exchanges to bring their proof-of-reserves report to light. As mentioned earlier, the community was glad that exchanges were being transparent. While Munter did not entirely dismiss proof-of-reserves auditing, he noted that there was room for scrutiny. Munter added,

“We are increasing our understanding of what’s going on in the marketplace. If we find fact patterns that we think are troublesome, we will consider a referral to the division of enforcement.”

This would certainly put auditing firms at risk. It looks like certain firms saw this coming as they steered away from the crypto market.

No more proof-of-reserves reports going forward?

Mazars, an auditing firm recently put a hold on its work with all of its crypto clients. This included Binance, as well as KuCoin. Right after this news broke out, none of the reports that were previously curated were found on Mazars’ website.

In addition to this, Armanino, an auditing firm that was previously associated with FTX also bid adieu to the crypto-verse. It should be noted that Armanino was involved in a class-action lawsuit regarding FTX.US.

As per CNBC, the Big Four accounting firms, Deloitte, Ernst & Young, KPMG, and PricewaterhouseCoopers were “unwilling” to audit Binance.

At this rate with the increased involvement of the SEC, crypto firms would find it hard to curate their proof-of-reserves report.