Last week, Corp Fin posted another sample comment letter—this one urging affected companies to provide “specific, tailored disclosure” about the “disruption” in the crypto markets and collateral events, the “company’s situation in relation to those events and conditions, and the potential impact on investors.” The sample comments focus on “the material impacts of crypto asset market developments, which may include a company’s exposure to counterparties and other market participants; risks related to a company’s liquidity and ability to obtain financing; and risks related to legal proceedings, investigations, or regulatory impacts in the crypto asset markets.” Below is a brief summary.
General. The letter asks companies to describe significant crypto asset market developments to the extent material to an understanding or assessment of the company’s business, financial condition and results of operations or share price.
Business. The letter asks companies to describe
- the material impact of bankruptcies, insolvencies and similar actions (including the downstream effects) in the crypto space and whether material assets may be lost or recovered;
- exposure of the company to counterparties, customers, custodians or other participants in crypto asset markets that have
- experienced excessive redemptions or withdrawals of crypto assets or suspensions of same,
- filed for bankruptcy, been decreed insolvent or similar action;
- customers with crypto assets that are unaccounted for; or
- experienced material corporate compliance failures;
- any steps taken to safeguard customers’ crypto assets, including any policies and procedures to prevent conflicts of interest, commingling of assets with customers and affiliates, and any material changes made in light of crypto asset market disruption.
MD&A. The letter asks companies to disclose
- experience of excessive redemptions or withdrawals of crypto assets, or suspensions of same, and the potential effects on financial condition and liquidity;
- with regard to any crypto assets owned, issued or held for third parties that serve as collateral for any loans or similar activities to which the company is a party, to the extent material, the identity and quantity of the crypto assets, the nature of non-third-party loan relationships, whether there are any encumbrances on the collateral and the impact of the market disruption on the value of the underlying collateral;
- the material impact of the crypto asset market disruption on the value of crypto assets issued by the company that serves as collateral for any other entity’s loan and any material financing and liquidity risk raised for the company’s business.
Risk Factors. The letter asks companies to disclose material risks related to
- excessive redemptions or withdrawals of crypto assets, or suspensions of same, including material concentrations of risk, quantifying any material exposures;
- reputational harm in light of recent disruption in the crypto asset markets;
- unauthorized or impermissible customer access to the company’s products and services outside of jurisdictions where the company has the required governmental licenses and authorizations, including steps taken to restrict access of U.S. persons;
- the possibility, and potential impact, of regulatory developments related to crypto, including material pending crypto legislation or regulation;
- the potential assertion of jurisdiction by U.S. and foreign regulators over crypto assets and markets;
- safeguarding of crypto assets and the risk that policies and procedures for safeguarding may not be effective;
- identified gaps in risk management policies in light of crypto asset market conditions and any changes to address those gaps;
- financing, liquidity or other risks arising out of the impact of the crypto asset market disruption on the value of crypto collateral; and
- the impact of disruptions in the crypto asset markets on stock price, customer demand, equity and debt financing, losses in or impairments of investments or other assets, pending or threatened legal proceedings and government investigations and price declines or volatility of crypto assets.