The Institute of Internal Auditors (IIA) calls on the U.S. Congress to enact proper corporate governance policies for United States-based crypto firms following the FTX fiasco.
The leading agency in international internal audit guidelines, the Institute of Internal Auditors (IIA), has penned a letter to the U.S. Congress, calling for enacting appropriate policies to strengthen corporate governance within cryptocurrency firms. This request follows the recent FTX implosion, which has exposed the need for proper corporate governance policies within crypto-focused entities.
The letter was addressed to the United States House Committee on Financial Services; the United States Senate Committee on Banking, Housing, and Urban Affairs; and the United States House Committee on Agriculture; according to an official press release Monday. The IIA highlighted the FTX collapse, as it sought to expose the risks to consumers when any firm lacks proper corporate governance.
Contents from the letter suggest that the IIA is making demands to Congress regarding two corporate governance policies that should help mitigate risks of a similar case to the FTX debacle, concurrently protecting consumers and stakeholders. These demands are:
- Congress should demand all U.S.-based crypto entities and their partners have proper auditing functions that satisfy all industry-grade requirements.
- All U.S.-based crypto firms should also be obliged to provide annual certifications of adequacy in their internal control, with an assessment carried out by an external, independent auditing entity.
IIA President and Chief Anthony Pugliese noted that FTX was not demanded by law to comply with some stipulations enshrined within the Sarbanes–Oxley Act of 2002 (SOX) due to its status as a private firm. SOX was initially published on July 30, 2002, by the U.S. Congress to stipulate some requirements from corporations in terms of recording and reporting their finances. This was aimed at protecting investors from fraudulent practices.
“Unfortunately, since most cryptocurrency exchanges are not subject to SOX compliance, consumers were denied basic organizational transparency and did not possess relevant information to assess investment risk,” Pugliese remarked.
Speaking further on the matter, Pugliese noted that the FTX fiasco shows that companies that are not involved in proper auditing practices are treading on dangerous grounds and putting themselves, their clients, and their stakeholders at risk.
Notwithstanding, several market watchers argue that FTX’s case was not a result of a deficiency in proper audits but a case of pure fraud. A report from The Crypto Basic highlighted claims that 8 U.S. House members attempted to stop an inquiry by the SEC into FTX’s activities in March.
“Countless investors are now paying the price for FTX’s failures. We cannot rely on unregulated crypto exchanges to do the right thing on their own – we need to mandate stronger corporate governance standards and ensure accountability when these exchanges aren’t protecting their customers,” he added.
According to Pugliese, these proposed measures should help improve investor confidence within the crypto space which has so far declined. The implosions of Terra, 3AC, and now, FTX have precipitated a wave of FUD which has impacted the crypto markets negatively, contributing to a market-wide slump.