A recent report has shed light on a concerning trend in the cryptocurrency industry. Despite the increasing popularity and mainstream acceptance of cryptocurrencies, well-known crypto firms are not adhering to meet basic governance standards. The lack of adherence to these fundamental principles raises concerns about transparency, accountability, and investor protection.
According to a recent survey conducted by Bloomberg, many highly recognized crypto firms are failing to comply with fundamental governance standards. Out of the 60 firms surveyed, a mere 31 of them currently obtain a comprehensive financial audit or reserve attestations from an independent auditor. Notably, industry insiders have revealed that many crypto firms remain unaudited due to the reluctance of the “Big Four” accounting firms to accept them as clients.
Numerous crypto firms deficient in independent boards
A recent study conducted by Bloomberg has revealed that certain prominent crypto firms are not adhering to established corporate governance standards, while several others are suspected of operating in unconventional ways. The study further indicated that among the 60 crypto industry firms surveyed, approximately 10 companies lacked a board comprising at least one non-executive director.
As per the findings of the study report, Tether, Huobi, and Magic Eden are identified as some firms lacking independent company boards. In cases where a board does exist, the report highlights that these boards either serve in an advisory capacity or predominantly consist of company executives, rendering them incapable of being classified as independent boards.
The report also mentioned that Binance, the leading cryptocurrency exchange in terms of trading volume, is expected to establish a formal board by the end of the year.
While investors in crypto firms are reportedly pushing for enhanced transparency and accountability in the aftermath of FTX’s collapse, the Bloomberg study discovered that slightly over half of the firms (31) currently undergo a thorough financial audit or obtain reserve attestations from an independent auditor. Conversely, the study revealed that the audit status of approximately 22 out of the 60 companies remains unknown. Merely seven companies confirmed that they have not undergone any form of an audit.
The lack of transparency within crypto firms
In contrast to the promise of transparency and tamperproof record-keeping offered by blockchain technology, Ruth Foxe Blader, a partner at venture capital firm Anthemis, expressed her disappointment with the opaqueness of the crypto industry, as quoted in the report.
“It’s an industry of anonymity that’s masquerading as transparency.” Blader contended that crypto firms should adhere to identical fundamental standards, such as audits and independent boards, as any other company. She emphasized that these measures are what investors would anticipate, especially from a company operating within the financial services industry.
The role of Big Four accounting firms
While the study’s results suggest a hesitance among industry participants to undergo audits, it has been argued that the underlying problem lies in the reluctance of the prominent accounting firms known as the “Big Four” to accept crypto firms as clients. This assertion gains support from the decision made by the France-based accounting group, Mazars Group, to cease providing verification services for reserves held by crypto exchanges.
As reported by Bitcoin.com News, Mazars Group discontinued these services in December 2022 due to concerns regarding the public’s comprehension of such reports. In the absence of a comprehensive regulatory framework, the experts cited in the Bloomberg report caution that participants in the crypto industry may lack the motivation to address the demands for increased transparency from investors and clients.
In conclusion, the Bloomberg study on the adherence to governance standards by crypto firms reveals a concerning lack of transparency, independent boards, and audits within the industry. This opacity contradicts the principles of blockchain technology and undermines investor trust. While some argue that the reluctance of the “Big Four” accounting firms to engage with crypto firms contributes to the issue, the need for a robust regulatory framework is paramount.
Without clear regulations in place, industry participants may not feel compelled to prioritize transparency and meet investor demands. Establishing a comprehensive governance framework is essential for the long-term success and mainstream acceptance of the crypto industry.