- A Bloomberg report alleges that most of the top crypto firms are not producing basic financial reports to back up their in-house audits
- Only half of the 60 firms targeted provide any external attestation or audit
- Exchanges claim that top accounting firms don’t want to deal with them
A Bloomberg report has found that many of the biggest crypto entities are failing to adhere to basic transparency guidelines, potentially putting customer money at risk. The outlet found that only half of the 60 polled firms “currently procure a full financial audit or reserve attestations from an independent auditor,” with many undertaking the ‘proof of funds’ audits themselves. However, with top accounting firms refusing to take on crypto exchanges as clients, these exchanges are caught between a rock and a hard place, although it appears that some have managed to get such firms on board.
Some Crypto Firms Have no Board
Bloomberg’s report claims that many of the large crypto firms it surveyed, which included the largest cryptocurrency exchanges, NFT exchanges and stablecoin issuers, operate outside accepted norms: for example, 10 of the 60 surveyed firms lacked a board of directors that included at least one non-executive member, which is accepted practice in US business. Among the firms mentioned in the study report are Tether, Huobi, and Magic Eden, all of which were found to be operating without independent company boards at all.
In cases where a board did exist, the report noted that they were either merely advisory in nature or predominantly composed of company executives, thus failing to meet the criteria for independence. The report also mentioned that Binance, the largest cryptocurrency exchange in terms of trading volume, is expected to establish a formal board by the conclusion of this year.
Big Four Don’t Like Crypto
When it came to audits, Bloomberg found that barely half of the firms surveyed “currently obtain a comprehensive financial audit or reserve attestations from an independent auditor”, with the audit status of approximately 22 of the 60 companies remaining unknown. Only seven companies confirmed that they had not undergone any form of audit.
In the wake of the FTX scandal, exchanges have been taking it upon themselves to find ways of proving their level of financial backing, using various blockchain-based ‘proof of reserves’, which has gone some way to assuaging doubt. However, such practices are of course outside the accepted standard practice for a registered company, but with the ‘Big Four’ accounting firms being largely unwilling to complete full audits, the best that crypto companies can hope for is attestations, which use the exchange’s data rather than the auditing firm doing its own investigation.
Bloomberg noted that more than half of the firms surveyed provided full or partial responses, while 17 declined to participate and eight didn’t respond at all.
