Crypto collapse prompts SEC warning

The cryptocurrency market continues to decline on heavy sell-offs. (Photo: Reuters)

The Securities and Exchange Commission (SEC) says listed companies investing in cryptocurrency and digital assets must have risk management systems in place to reduce the impact of market volatility.

The cryptocurrency market has continued to decline amid heavy sell-offs, with its market value having plunged about 70% in seven months.

As of 3pm on Wednesday, the cryptocurrency market cap stood at $926 billion, down 6.8% in 24 hours, according to Coingecko.com.

Bitcoin, the biggest cryptocurrency by market cap, was at $20,812.91, down 9.2% in 24 hours and 69.9% in seven months from its peak price in November 2021. Ethereum, the coin with the second-largest market cap, was at $1,098.71, down 11.6% in 24 hours and 77.5% in seven months.

To cushion the blow for investors, the SEC issued circular letters on June 14 urging listed companies investing or engaging in business related to digital assets to develop risk management and internal control systems, to reduce the risk and potential impact of volatility, and to establish a safe digital asset control storage system to prevent the risk of cybertheft.

According to the letters, the regulator also asked listed companies with investments or plans to invest in digital assets to carefully consider their intentions to ensure these investments will not jeopardise their financial positions or operating results, because investments in digital assets are risky and vulnerable to cybercrimes.

Companies must ensure there is a segregation of duty between those responsible for maintaining wallets and those responsible for purchasing, selling, transferring, or storing digital assets in the wallet of a licensed and regulated custodian. There must also be a monitoring system to ensure digital assets exist, no digital assets are misused, and the operation is strictly in accordance with the measures and systems set forth.

In addition, the SEC asked the companies’ audit committees to inspect and provide comments on the efficiency of the firms’ internal control systems regarding digital asset governance.