IIA Wants Mandatory Internal Audits for US Crypto Exchanges

The Institute of Internal Auditors sent a letter to Congress Thursday recommending that all US crypto exchanges have an independent “internal audit function.”

Inside were four separate legislative proposals that will “promote stronger corporate governance, greater transparency and accountability, and enhanced investor protections at cryptocurrency exchanges operating in the United States,” according to the May 4 letter written by Anthony Pugliese, president and CEO of the IIA.

The second proposal defines an internal audit function as “a professional individual or group…responsible for providing the board of directors and management with…: objective assurance over the covered entity’s internal controls; consulting services; and strategic advice on risk mitigation.”

Additionally, the second proposal stipulates that the internal audit function will be independent from management.

The third proposal mandates the establishment of this internal audit function for all US crypto exchanges. The leader of the function will also be responsible for briefing a crypto exchange’s board on “material risks” no less than twice a year.

This IIA previously sent a letter to Congress in December following the collapse of FTX to begin a dialogue with lawmakers and “help shape their policy recommendations” amid the crypto winter. 

“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 in the May 4 letter.

The final proposal that was attached to the IIA letter suggested that lawmakers create an annual auditing report that the management staff of crypto exchanges must fill out and send to whichever regulatory authorities Congress deems appropriate. Management would also have to have evaluated the effectiveness of the company’s internal controls 90 days prior to submitting the report. 

Pugliese closed out his message to lawmakers telling them that these guidelines could bolster investor confidence in a sector that’s been hammered by numerous shady actors.

“The IIA believes inclusion of new internal audit requirements will, in part, promote transparency and accountability designed to restore investor confidence in the cryptocurrency market,” he wrote.

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