- Auditing firm Mazars Group has dropped cryptocurrency firms as clients, according to crypto exchange Binance.
- Former SEC regulator says Binance’s proof of reserves audit did not address internal financial controls and lacks an ‘assurance conclusion.
An auditor firm from South Africa, Mazars Group, has halted work with all its client cryptocurrency firms, including crypto.com, KuCoin, and Binance. Speaking to Decrypt, Binance said:
“Mazars has indicated that they will temporarily pause their work with all global crypto clients, including Crypto.com, KuCoin, and Binance.”
The financial wellness of cryptocurrency exchanges has been under scrutiny after crypto exchange FTX collapsed in November, all fingers pointing to mismanagement by Sam Bankman-Fried, who is now in prison in The Bahamas. Accordingly, many trading platforms have made efforts to perform proof of reserves reports, including Binance, Kucoin, and Crypto.com, among others.
Mazars Takes Down Binance Audit From Its Website
Last week, Binance brought South African auditors from Mazars Group to audit the company’s proof of reserves. Reporting on the audit, Mazars showed that Binance has sufficient assets to sustain mass customer withdrawals.
Based on the Mazars published, Binance had a 101% collateralization ratio for 575,742 Bitcoin in net customer deposits as of November 22. The link to the report is no longer working at the time of writing.
Speaking to a news site, Mazar’s spokesperson said that the auditor had “paused its activity relating to the provision of Proof of Reserves Reports for entities within the crypto sector following concerns on how the public interprets these reports.
Noteworthy, after Mazars’ initial publication of Binance PoR, the report faced heavy criticism because it was not a full official audit but referred to a snapshot of the exchange’s assets at a certain point in time without disclosing its liabilities.
Crypto Twitter was among the critiques, with some pointing to the largest crypto exchange in the world choosing Mazars, a relatively unknown company, to do the auditing. Citing one particular comment:
“…there was no more recognized auditor than Mazars to do the audit, right?” \
There were also allegations that an exchange can borrow assets to patch up their reserves or collude with auditing firms.
Former SEC regulator John Reed Stark has joined the critique bandwagon, saying, “Binance’s proof of reserves report is how he defines a ‘red flag .’ According to the compliance veteran, the report did not address internal financial controls and lacked an ‘assurance conclusion.’
In legal jargon, an “assurance conclusion” is where the auditor evaluates whether the evidence obtained is “sufficient and appropriate” and then offers a conclusion about whether the sources are free from misrepresentation. According to Stark, it fails to “vouch for the numbers.”
Crypto exchange Kraken founder and CEO Jesse Powell termed the report “Either ignorance or intentional misrepresentation,” saying, “The statement of assets is pointless without liabilities.”
Amid these concerns and criticism, Mazars decided to take down the reports and halt auditing with all crypto-related entities, and Binance Coin (BNB) has paid the price for it.
Binance BNB Token Plummets
In the wake of the South African auditor halting work, BNB’s price plunged 5.2% on Friday. At this time, BNB is trading at $237.56 on CoinGecko. BNB, short for Binance Coin, is the native token of the Binance exchange.
In the crypto market, many things ride on the kind of news trending at that time, whether positive or negative, influencing trader and investor sentiment. Amid fears associated with the FTX collapse and its FTT token, concerning news around Binance Coin makes it unsurprising that BNB coin plunged.
Speaking on the matter, a Binance spokesperson said that the largest crypto exchange would not be able to work with Mazars for the time being, adding, “Binance is looking to embrace additional transparency and exploring the best ways to share those details in the coming months.”
Binance has also committed to advancing with its Merkle tree-based proof of reserves (PoR) pilot.
On the question of bringing in the services of another accounting firm, a Binance spokesperson said that the company had “reached out to multiple large firms, among them the Big Four.” However, the Big Four is currently unwilling to conduct a PoR for a private company, so Binance must look for an auditor elsewhere.
Besides the Binance exchange, Mazars also performed a proof-of-reserves assessment of Kucoin and Crypto.com exchanges, establishing that BTC, ETH, USDT, and USDC reserves at Kucoin were also overcollateralized. At the same time, Crypto.com had a 1:1 backing of its reserves.
Crypto.com spokesperson has confirmed this, saying that the exchange completed its PoR attestation with Mazars “successfully.” There has yet to be any confirmation from KuCoin. Reports for Kucoin and Crypto.com have also been pulled down from Mazars’ website.
