In light of recent events in the market, the Securities and Exchange Commission (SEC) has released new guidance related to crypto assets. The Division of Corporation Finance believes that every company should disclose its exposure to crypto assets, including risks and developments.
Participants in the crypto asset market are now facing bankruptcy and economic instability, which has significantly disrupted it. Companies may be required to disclose information about how this event and other associated events will affect them economically.
These disclosures will give investors detailed information on market “events and conditions,” the company’s position regarding it, and any future effects on investors. Additionally, “companies with ongoing reporting obligations should consider whether their existing disclosures should be updated.”
However, a sample letter that the Division may issue to a company, based on the facts and circumstances specific to that company, is also provided by the SEC as an example in the press release.
According to the statement:
In meeting their disclosure obligations, companies should consider the need to address crypto asset market developments in their filings generally, including in their business descriptions, risk factors, and management’s discussion and analysis.
SEC Points Out Clear Disclosure In Sample Letter
To help companies meet these compliance obligations, the example of comments focuses on the necessity for “clear disclosure” about essential changes in crypto-asset markets.
It includes how the company’s exposure to counterparties and other market players could change. Additionally, what risks it may face because of its lack of liquidity or access to debt financing, and any risks from being involved with lawsuits or investigations in this field.
The sample letter is divided into four sections and includes a total of 16 comments. Sections include “General,” which discloses any noteworthy developments in the market for crypto assets that are relevant to the understanding or evaluating of the firm, among other things.
Other sections are “Description of Business,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Risk Factors.”
The SEC said:
The Division urges companies to take these sample comments into consideration as they prepare disclosure documents that may not typically be subject to review by the Division before their use.”
Moreover, if a company has any inquiries about its proposed disclosure, the Division strongly advises contacting the industry office in charge of the company’s filings.
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