Regulator denotes potential financial risk and exposure concerns
KPMG Insight. In light of recent financial distress and disruption within the crypto asset market and growing pressure from policymakers, multiple regulators have denoted potential financial and exposure concerns, including:
The regulators are looking to assess related financial exposures and interconnectedness of the crypto markets via direct, counterparty, third-party, collateral, etc. They are also looking to assess the strength of risk management, safeguards, and controls. The SEC issuance denotes express questions that all companies should be asking relative to potential financial exposures and general risk management processes and controls.
The Securities and Exchange Commission (SEC) Division of Corporation Finance (Division) states that companies may have disclosure obligations under the federal securities laws related to direct or indirect impacts that the recent widespread disruption in the crypto asset markets have had, or may have, on their businesses.
The Division released a sample letter containing illustrative comments similar to those that the Division may issue to companies based on a review of their disclosures and depending on their facts and circumstances. The Division adds that the comments “focus on the need for clear disclosure about the material impacts of crypto asset market developments, which may include exposure to counterparties and other market participants; risks related to a company’s liquidity and ability to obtain financing; and risks related to legal proceedings, investigations, or regulatory impacts in the crypto asset markets.”
The Division cautions that the accuracy and adequacy of a company’s disclosures are the responsibility of the company and its management. Companies should consider addressing crypto asset market developments in their filings generally, including in business descriptions, risk factors, and management’s discussion and analysis.
The sample letter highlights the following areas of focus.
Description of Business
To the extent material to the business, describe:
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Explain whether the company:
Describe “material” risks to the business arising from disruption in the crypto asset markets related to:
Points of View
Insights and analyses of emerging regulatory issues impacting financial services firms.
Quick hitting summaries of specific regulatory developments and their impact on financial services firms.
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