This Financial Reporting Update highlights key developments and issues that are relevant to finance and accounting personnel.
Securities and Exchange Commission
The Securities and Exchange Commission (SEC) issued first-of-its-kind action against cryptocurrency lender BlockFi Lending LLC. BlockFi failed to register the offers and sales of their retail crypto lending product, BlockFi Interest Accounts (BIA), and misrepresented the level of risk presented to investor’s portfolios for a period of two years. In addition, BlockFi failed the registration requirements of the Investment Company Act of 1940. BlockFi has decided to settle with the SEC: agreeing to a penalty of $50 million, coming into compliance with the Investment Company Act, and ending all sales of unregistered BIAs. BlockFi also faced similar charges in 32 other states which they again settled for another $50 million.
The SEC will now require some institutional investment managers to report short sale information to the SEC monthly. This is being accomplished through the New Exchange Act Rule 13f-2 with the use of a Regulation SHO Form. The SEC would then make this aggregate short sale data available to the general public. The SEC also proposed a change to Regulation SHO, Rule 205. If Broker-Dealers have any short positions they would have to mark a purchase order in the same security as “buy to cover” when the order is entered. This is an effort for “identifying potentially abusive trading practices including short squeezes.” Both proposed changes are an attempt for more information transparency for both investors and regulators.
American Institute of Certified Public Accountants
The American Institute of Certified Public Accountants (AICPA) published a recent cybersecurity report done by HP Wolf Security. HP Wolf Security discovered a 588% increase in Excel based cyber-attacks from Q3 to Q4 of 2021. The attacks come through emails with dangerous .XLL files attached or linked. Once clicked, these files open Excel and ask you to install an add-in required for the file. HP Wolf Security recommends setting up an email gateway that blocks .XLL attachments, configuring Excel to only install add-ins from trusted publishers, and having Excel disable all proprietary add-ins. You can find the original report done by HP Wolf Security here.
Public Company Accounting Oversight Board
The Public Company Accounting Oversight Board (PCAOB) created two new advisory groups called the Investor Advisory Group (IAG) and the Standards and Emerging Issues Advisory Group (SEIAG). The IAG’s main function will be advising the PCAOB on audit proceedings and quality. They will provide investor insight on any potential risks or concerns to facilitate the best possible audits. The SEIAG is replacing the Standards Advisory Group. They will perform the same role of advising the PCAOB on existing and new standards. However, since the SEIAG will be made up of investors and stakeholders, there are hopes it will provide better public insight and engagement. The PCAOB has delayed chartering these new groups in order to gather public comments and receive nominations for members of each group.
Save the Date
The SEC has reopened Proposed Exchange Act Rule 10c-1 for public comment. This rule requires the reporting of the maternal terms of any securities loan between two parties. To increase transparency in the lending market, the lender would be responsible for reporting. Public comment will close 30 days after its publication in the federal register.