According to the regulator, it does not guarantee that customer funds were not lent or used immediately after the report was published

​US authorities refuse to recognize the system of proof of reserves of crypto exchanges

09.03.2023 - 08:15

311

2 min

What’s new? The US Public Company Accounting Oversight Board (PCAOB) urged investors to be cautious about the Proof-of-Reserves (PoR) reports that some crypto exchanges and stablecoin issuers provide. So, despite any claims to the contrary, PoR reports are not the equivalent or more stringent verification than an audit, and they are not conducted in accordance with PCAOB standards. In addition, it is up to crypto companies’ governance to decide whether to make the results of PoR reports public, including the scope and format of the information provided.

Information on the PCAOB website

What else does the PCAOB note say? Regulator officials are aware that some service providers, including PCAOB-registered accounting firms, provide PoR reports to crypto companies. According to the board, companies in the digital asset sector may engage auditors to issue PoR reports “in an attempt to reassure customers in response to widespread concerns about, for example, the type of reserve holdings, or, the safety and availability of customers’ digital assets,” etc.

The PCAOB is concerned that investors may be overly reliant on PoR reports, which are not within its purview. Users should note that the proof-of-reserve system is not an audit and does not provide meaningful assurance to investors or the public. The board called such reports incomplete and stressed that they also do not disclose the effectiveness of internal controls over and governance of user assets.

The board explained that PoR reports provide data on assets at a particular point in time and do not provide assurance that funds have not been lent or used, becoming unavailable to customers immediately after publication.

After the FTX crash, many exchanges brought in third-party auditors to review reserves, including Binance, OKX, KuCoin, and BitMEX. However, according to Michael Burry, American financier and “Big Short” hero, auditing crypto exchanges’ proof-of-reserves does not make sense.

In late December 2022, Mazars, the reserve auditor for Binance, Crypto.com, and KuCoin, suspended all work for the crypto companies. Later, the US Securities and Exchange Commission (SEC) increased oversight of crypto companies’ auditors, after which they began refusing to cooperate for fear of litigation.

Subscribe to Getblock Magazine and stay up to date with the latest news from the world of cryptocurrencies and the digital economy