IIA proposes legislation for auditing crypto exchanges

The Institute of Internal Auditors sent Congress a legislative proposal recommending that all cryptocurrency exchanges operating in the U.S. should possess an independent internal audit function to provide objective assurance over their internal controls.

The proposal comes after the high-profile collapse last year of the crypto exchange FTX and other exchanges like BlockFi, Celsius and Voyager Digital.

IIA president and CEO Anthony Pugliese sent a letter Thursday to leaders of the Senate and House committees that oversee banking, financial services and agriculture, following up on a letter he sent last December (see story).

“The IIA strongly believes the existence of a robust internal audit function is an essential component of any effort to restore and enhance consumer confidence in the digital asset marketplace,” Pugliese wrote in his most recent letter.

He noted that since his previous letter, the organization has consulted with congressional staffers and others on the role of internal auditors in safeguarding investors.

“The IIA conducted numerous meetings with congressional staff and external stakeholders to determine the appropriate role that internal audit could serve in potential policy solutions that Congress might consider regarding the lack of sufficient investor protections and corporate governance safeguards at cryptocurrency exchanges,” Pugliese wrote.

The IIA urged Congress to include in any future measure governing the operations of cryptocurrency exchanges, including four key recommendations:

• Insertion of a definition for a “Certified Internal Auditor;”
• Insertion of a definition for an “internal audit function;”
• Establishment of a new requirement that all cryptocurrency exchanges operating in the United States, as well as any legally affiliated organizations, must possess an independent internal audit function to provide objective assurance over their internal controls; and
• Creation of an annual Internal Control and Evaluation Report in which senior management officials at a cryptocurrency exchange must certify the appropriateness and efficacy of the exchange’s internal controls.

The IIA also included specific legislative language for each of the four recommendations, along with a rationale for the proposals.
In January, Sen. Elizabeth Warren, D-Massachusetts, and Senate Finance Committee chairman Ron Wyden, D-Oregon, sent a letter to Public Company Accounting Oversight Board chair Erica Williams to do more to regulate the audits of cryptocurrency companies after the collapse of FTX (see story).