Despite increased investor scrutiny of the industry, many of the biggest players in the cryptocurrency market still avoid asking basic questions about their businesses, according to a Financial Times survey.
Transparency and corporate governance arrangements regarding the protection of client assets are on the agenda following numerous failures and regulatory lawsuits focused on conflicts of interest and business practices.
In recent months, Binance, the world’s largest exchange, has been accused by U.S. financial regulators of operating illegally in the country and hiding its ties to China. Meanwhile, the FTX bankruptcy last year exposed the exchange’s close ties to Sam Bankman-Fried’s Alameda Research trading arm.
The high-profile case raises questions about whether some companies meet minimum consumer protection standards and the quality of due diligence conducted by a number of private equity giants investing in cryptocurrency companies. is causing
UK market regulators have rejected 85% of 265 applications to join the crypto-asset regime in the past three years, highlighting the diversity of compliance procedures across the industry. .
The FT asked 21 of the most prominent cryptocurrency companies about their governance and handling of customer assets. Eight companies declined to share basic information, such as the location of their headquarters, but some did.
“It’s a fundamental fear of sharing information,” said James Neumann, co-founder of perfORM Due Diligence Services, a group that researches the private sector background of cryptocurrencies, venture capital and real estate.
“When we are asked to review cryptocurrency exchanges or custodians, we are often first confronted with a non-disclosure agreement . We may not be able to get the job done,” he said.
The Financial Times approached the following companies:
Cryptocurrency exchanges: Binance, Coinbase, Kraken, KuCoin, Bitstamp, Bitfinex, OKX, Bybit, Gemini, Huobi, Crypto.com, Coincheck. Together they represent the largest cryptocurrency exchange in the world.
Genesis and B2C2, a trading desk for professional investors. Crypto finance provider BlockFi. Digital wallet and transaction service Abra. Market Maker Wintermute. Venture capital fund DCG. Jump — The cryptocurrency division of Chicago-based Jump Trading. Amber Group, a trading and lending platform. and stablecoin provider Tether.
Then I asked the following questions:
Where is your company headquartered? Who are the main regulators?
Do you have a board of directors? Who are the members? Who are the independent directors?
Who is your Chief Financial Officer? Who is your Chief Compliance Officer?
Who are the auditors? In what year was the last financial audit conducted? Which entities were audited?
How many employees do you have?
Are client assets held in segregated accounts?
Do you lend customer assets or use them as collateral for loans?
For exchanges: Do you conduct trading or market-making activities? Do you or your senior management own or have common ownership/control of a trading or market-making company? ?
Match customer liabilities with the same assets one-to-one?
Do you separate trading and storage activities?
Do you have your own coin/native token? What percentage of your assets is it?
Click here for details of each company’s disclosure.
Data and Visual Journalism by Federica Cocco