SEC: Crypto Exchanges Need to Disclose Customer Holdings as Liabilities

Martin Young
Published: Apr 1, 2022, 02:52 GMT+00:00

The U.S. Securities and Exchange Commission has stated that digital asset exchanges will have to report the assets they hold for clients on their balance sheets.

SEC crypto regulations

Key Insights:

  • US regulator wants exchanges to report crypto holdings on balance sheets. 
  • The new guidelines only apply to U.S. registered exchanges and companies.
  • The SEC still views digital assets as extremely risky investments.

In the latest regulatory setback on the crypto industry in the United States, the financial regulator has released new guidelines this week for exchanges.

On March 31, the securities regulator said that U.S. listed companies that hold crypto assets currencies for customers should account for them as a liability on their balance sheets. It also added that the exchanges need to disclose the related risks to investors.

The new guidance also applies to traditional firms such as retail brokers and banks that provide digital asset services or custody for clients, according to Reuters.

Crypto as a Liability

SEC Chairman Gary Gensler has previously warned that investors holding cryptocurrency on exchanges such as Coinbase effectively make unsecured loans to those companies.

Furthermore, traditional assets have well-established accounting standards for safeguards. However, no such standard exists for digital assets yet.

The regulator again warns about the risks of financial losses, and the move confirms its mission statement regarding investor protection. However, it is another regulatory hoop that exchanges operating in the United States need to jump through. The SEC wrote:

“The technological mechanisms supporting how crypto-assets are issued, held, or transferred, as well as legal uncertainties regarding holding crypto-assets for others, create significant increased risks… including an increased risk of financial loss,”

The regulator also stipulated that companies should disclose the “nature and amount” of cryptocurrency they are responsible for. Separate disclosures are required for each asset and any vulnerabilities that may arise from holding digital assets.

This latest requirement only applies to registered and regulated crypto exchanges operating in the United States.

Markets Take a Dive

Crypto markets have dived as the week draws to a close. However, this is unlikely to be related to the latest restrictions from the SEC and is more of an expected correction.

Total market capitalization has declined by 4.9% over the past 24 hours, according to CoinGecko. At the time of writing, it was $2.15 trillion as $124 billion has left the space over the past 12 hours.

Bitcoin [BTC] and Ethereum [ETH] are leading losses as they correct from a bullish week of gains. The assets were trading down 5.3% and 4.9%, respectively but were still up on the seven-day time frame.

About the Author

Martin has been covering the latest developments in the blockchain and digital asset industry since 2017 when he made his first investment. He has previous trading experience and has worked extensively in IT over the past 2 decades.

Did you find this article useful?