The Securities and Exchange Commission (SEC) has outlined new cryptocurrency rules mandating companies that issue securities to reveal to investors their exposure and risk to the cryptocurrency market.
This rule is coming a month after FTX CEO Sam Bankman-Fried reportedly used $10 billion of customer funds to finance his trading firm Alameda Research.
Currently, the securities and commodities regulators are probing whether FTX correctly managed client funds, despite statements from the crypto exchange CEO that all customer holdings were covered.
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After filing for bankruptcy, reports reveal that FTX is currently trying to raise $9.4 billion to pay back its customers.
In a bid to protect customers’ funds from being misused, former investment Banker and current SEC chairperson Gary Gensler stated the commission would be strict with its rules by enforcing actions against companies that do not comply.
The new rule mandates that companies will have to include crypto asset holdings as well as their risk exposure to the FTX bankruptcy and other market developments in their public filings.
SEC’s Division of Corporation Finance after a careful review drafted a letter that mandates companies to describe how company bankruptcies and subsequent effects have impacted or may impact their business, financial condition, customers, and counterparties, either directly or indirectly.
Also, they are to present a description of “any material risk to them, either direct or indirect, due to excessive redemptions, withdrawals, or a suspension of redemptions or withdrawals, of crypto assets. They are to Identify any material concentrations of risk and quantify any material exposures.
The collapse of the FTX has no doubt put regulatory bodies on the hot seat over their failure to protect investors from losing money in the collapse of yet another billion-dollar firm.
The FTX debacle has continued to mount pressure on the Securities and Exchange Commission to enforce rules to protect the crypto industry.
Reports disclose that SEC has some investigations under way focusing on exchanges such as Coinbase Global Inc. and the U.S. businesses of Binance and FTX.
The Commission is investigating Coinbase Global Inc. over a lending program the company plans to market and has indicated it would sue the company over the offering.
After FTX collapse, the company’s valuation plunged from $32 billion to bankruptcy in a matter of days, dragging down founder and CEO Sam Bankman-Fried’s $16 billion net worth to near-zero.
Reports reveal that at least $1billion of customer funds have vanished from the exchange platform.
The collapse has no doubt worsened the volatile crypto market, which lost billions in value, dropping below $1 trillion.