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U.S. SEC Issues New Disclosure Guidelines Regarding Cryptocurrency

Validated Media

According to a report on CNBC, the new guidelines issued by the SEC’s Corporation Finance division seeks to protect Investors’ interest after the FTX debacle, which wiped out billions of dollars from the industry, causing an adverse chain reaction to other firms such as Genesis and BlockFi.

The crypto giant filed for bankruptcy on November 11 after its liquidity crunch and alleged mismanagement of users’ funds affected more than 100,000 investors who held their assets on the platform.

Financial Material Information

Due to the size of the impact, the SEC’s Corporation Finance unit has introduced new guidelines that prompt publicly-traded firms exposed to the collapse of FTX and other crypto-related businesses to disclose to customers any risks from the disruptions of the digital assets market.

The companies are to include their cryptocurrency holdings and any risk exposure to the crypto market in their public filings, including the FTX bankruptcy and any further market developments.

With the new rules established under the Securities Act of 1933 and the Securities Exchange Act of 1934, the Commission has also mandated companies to reveal financial material information to investors, including how the recent bankruptcies and their subsequent effects may affect their operations.

“A suggested item within the letter asks the issuer to describe how company bankruptcies and subsequent effects have impacted or may impact your business, financial condition, customers, and counterparties, either directly or indirectly,” the report read.

May Not Be Subjected to Review Before Use

These companies are also required to disclose any material risk to investors, “either direct or indirect, due to excessive redemptions, withdrawals, or a suspension of redemptions or withdrawals, of crypto assets. Identify any material concentrations of risk and quantify any material exposures.”

While the new rules are yet to be implemented, the SEC Corporation Finance division has urged companies to adopt the guidelines as the Commission prepares official documents, noting that the rules may not be susceptible to review before use.

(By William A. Frederick)

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