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A Bloomberg report has revealed that many crypto firms still follow some wrong approaches to their operations.
The surveyed firms handle assets worth tens of billions of dollars daily but don’t work with external auditors and independent boards to ensure accountability and openness.
The report noted that the collapse of the FTX exchange and its sister company Alameda Research hadn't discouraged many crypto firms from following their own rules.
Many Crypto Firms Operate Without Proper Audits and Boards
Bloomberg surveyed 60 top crypto firms in Q1 of 2023. The respondents included token issuers, crypto exchanges, analytics businesses, and mining companies.
The focus of the survey was to determine how crypto firms handle their controls and governance practices.
Some top firms control tens of billions of dollars in crypto assets daily. But while some adhere to the traditional standards guiding a firm's operations, others don't.
The researchers focused on the companies that were publicly listed, held a significant influence in the crypto industry, or were valued at over $1 billion in private fundraising.
The firms under survey received the same questions to identify those operating with a third-party auditor and an independent board.
Over half of the 60 crypto companies provided full or partial answers. 17 firms refused to participate in the survey, while 8 firms refused to respond to the questions.
Also, the findings revealed that half of the crypto firms utilize a third-party auditor to assess their financial status.
63% of the firms already have an independent board, and almost all the firms have raised outside investments based on their information on PitchBook.
Further, the survey result showed that 46% of the 24 crypto companies that currently have an external auditor said it was a Big Four accountant.
Circle, Coinbase, and Ripple pointed at Deloitte, while Chainalysis, Anchorage, and Ledge wrote EY as their auditor.
Regarding the board of directors, 38 of the 60 surveyed firms have a board with at least a non-executive member.
10 companies out of the 60 didn't have a board, while 12 didn't answer the question about their board and don't have such information in public fillings.
The companies without independent boards were Magic Eden, Tether, and Huobi. Notably, their boards consisted of only advisory members or company executives.
FTX Exchange Crash Shows The Need For Audits and Independent Boards
The crash of the FTX crypto exchange sent shock waves throughout the crypto market last year as it failed and filed for bankruptcy sinking investors' funds.
Apart from FTX, its sister company Alameda Research, also filed for bankruptcy due to heavy losses from its trading algorithm and overreliance on FTT.
During investigations, many reasons for the crash emerged, including a lack of proper management practices, funds mismanagement, and misappropriation, absence of a board of directors, lack of audits, etc.
Also, investigations revealed that many entities under Sam Bankman-Fried’s FTX Empire never held a board meeting before the bankruptcy filing in November 2022.
The crash of the entities shows that crypto firms need to follow the basic standard of auditing their finances and having an independent board in place.
But according to a partner at a digital financial services venture capital firm Anthemis, crypto firms lack accountability.
During an interview, Ruth Foxe Blader stated, "crypto is an industry of anonymity that's masquerading as transparency."
Another statement about the need for proper standards came from the managing partner at crypto VC firm CoinFund.
David Parman stated, "While it’s typical for a startup to have only its founders on the board during a seed investment, it should have at least one outside director by its Series A round."