The crypto industry has recently faced several challenges, including the fallout from FTX, bank runs on Silicon Valley Bank and Signature Bank, the impact of the failure of Credit Suisse, increased regulation and scrutiny from the SEC, and other risks.
With the failure of the banking industry however, less than 15 years after the crash of 2008, this is an incredible opportunity to develop the crypto ecosystem and show that our money can be decentralized, and controlled by no one.
Now is the time to think like a mature ecosystem, prioritize compliance and risk management and bring confidence to the mass audience.
To do so, organizations must invest in their finance teams, support them, and listen to their advice.
Finance directors must take an active role in managing treasury, guiding the company’s leadership, building back office processes, and ensuring that capital is not fully locked into market risk.
Joel Haft, Head of Internal Audit at Bequant explains, “As an emerging asset class in its early stages, businesses in the digital asset space need to be risk and control-savvy, just as they would in any other financial institution.
Building out an effective second and third line of defense is on many business radars, but what does this actually mean?
In layman's terms, if anything slips through the net, whether it be internal fraud, a regulatory or data breach, for instance, the intention is that the second line (Risk & Compliance functions) will pick this up and work with the business to fix the issue at hand. Should the issue not be identified by the second line, the third line (Internal Audit) sits as an independent function assuring the internal control environment and will hopefully pick up the rest!
Having a robust set of internal controls is paramount to mitigating key risks and helps management seek comfort that, as a business, they are doing the right thing. However, for crypto firms, there is an even greater onus given the lack of transparency, growing distrust, and our current position on the maturity scale.”
However, this advice can only be effective if based on sound financial reports.
Accurate historic financials are necessary for accurate cash flow forecasting and modelling.
Similarly, banking relationships can only be developed if financial statements can be produced, and organizations can only raise debt/equity if their finance teams can survive audits.
Tres Finance is the first Web3 financial data lake. Partnering with Harris & Trotter, we have the technology and the audit expertise to give you 100% coverage of your audit needs and always be on the lookout for new assets and transactions.
To effectively manage and mitigate risks in the crypto industry, organizations should consider implementing the following measures: