Digital Assets Need Real Time Disclosure. It’s Up to Exchanges to Require it

Recent regulatory action seems to suggest that crypto exchanges may be on the chopping block when it comes to issues of transparency. It’s no secret that cryptocurrency exchanges remain largely unregulated. Wash trading and fraudulent activity is rampant and difficult to detect. Hundreds of millions of dollars have disappeared into the ether.

Despite the libertarian views of the original cypherpunks, exchange hacks have sparked investigations and calls for government oversight. Huge failures like Mt. Gox and QuadrigaCX illustrate a desperate need for proper governance and transparency. Dozens of digital asset exchanges have failed, have been compromised or in some way lost serious amounts of investor funds.

As investors become more concerned with the accuracy and transparency of these markets, regulators are likely moving fast to begin curbing abuse. One such regulator, the Securities and Exchange Commission, has very long arms and has been known to reach around the world with their powers of subpoena.

Traditional exchanges like the NYSE and SIX submit to quarterly review and annual audit, and all listed companies are required to do the same. In the crypto space, exchanges do not submit to periodic review or audit. They are not registered and are often not advised sufficiently to deal with matters of governance, control environments and financial reporting. In addition, none of the digital assets on these exchanges provides verifiable assurance or reporting.

When regulators come down – and they will come – those asset issuers and exchanges will face dire consequences. Huge expenses and disruption will occur when forced implementation of a top-down regulatory framework is imposed. Many existing exchanges will not survive. On the other hand, those which have already implemented controls and disclosure protocols have nothing to fear from oncoming regulation.

Service organizations such as exchanges and custodians submit to SOC audits (Service Organizational Controls) and financial audits at least once per year. Given the fast-paced world of crypto, once per year is not nearly enough. Reports seem to suggest that a continuous audit environment is far more appropriate for crypto service organizations, but traditional methodologies have been historically cost prohibitive.

Crypto will lead by example

The DCARPE Assurance and Reporting Protocol is a continuous audit and financial reporting network populated by CPAs and Chartered Accountants who operate specialized “enterprise external validation” nodes designed to validate the system and control functional compliance, financial data structure and accuracy and disclosure control compliance for issuers of digital assets. In other words, they provide a “bitcoin style” external validation of operational and financial truth for enterprises and it occurs in real time and on a continuous basis.

The one auditor, one enterprise, one wet ink signature on one opinion letter once a year may be coming to an end.

Auditchain, the founding member of the DCARPE Alliance, is leading the development of the DCARPE Assurance and Disclosure Protocol with other members in the technical category. The DCARPE Explorer is the entry point for auditors, enterprises, exchanges, investors and regulators. Specifically, the DCARPE Explorer produces up-to-the-minute reports containing valuable financial and audit analytics data to investors.

The assurance technology developed by Auditchain will be revolutionary for digital assets, which have a long and unpleasant record of purposeful obfuscation and a complete lack of transparency.

All of this is good news for cryptocurrencies and other digital assets looking to get ahead of oncoming regulation. It’s even better for market confidence, especially at a time that crypto may be on the verge of mass adoption.

ExMarkets, a cryptocurrency exchange, has partnered with Auditchain to become one of the first digital asset exchanges to integrate the DCARPE Explorer and provide continuous audit and real-time financial reporting capabilities for issuers of digital assets. More importantly, the ability for exchange customers to see right through up to the minute financial detail of digital assets who submit to the protocol.

ExMarkets will also host the first phase of Auditchain’s Initial Exchange Offering (IEO) on June 14.

By adopting the DCARPE Assurance and Disclosure Protocol, any exchange or enterprise commits to a revolutionary change in the way financial information is validated and disclosed. Finally, information can be relevant and actionable.

Forward-thinking exchanges committed to adopting the DCARPE Assurance and Disclosure Protocol become responsible industry leaders, preparing for an inevitably regulated future by adopting a protocol that will guarantee integrity and trust without the financially devastating imposition of being compelled to do so by governments and regulators. They will consequently set the example for all global financial exchange forums and foster loyalty among investors that will lead to long and sustainable brands.

CPAs, Chartered Accountants and those who have an interest in making contributions in the technical and thought leadership categories are encouraged to apply for membership by visiting https://dcarpe.org/join or email [email protected]

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