Mazars is halting work with its crypto clients, including Binance, the world’s largest crypto exchange, as the sector comes under heightened scrutiny following the collapse of FTX.
The auditor had been hired by Binance to conduct a “proof of reserves” report — something all crypto exchanges are under pressure to produce as they seek to persuade nervous clients that they hold sufficient assets to match all customer deposits.
“Mazars has indicated that they will temporarily pause their work with all of their crypto clients globally, which include Crypto.com, KuCoin, and Binance. Unfortunately, this means that we will not be able to work with Mazars for the moment,” Binance said in a statement on Friday.
The news, confirmed by a person briefed on Mazars’ decision, comes as consumers and regulators question the stability of crypto exchanges in the wake of FTX’s stunning collapse into bankruptcy last month.
Earlier this week, more than $1bn was pulled from Binance as fears over the broader crypto market mounted, in lockstep with fears Binance could be the target of US investigations.
“Over the past week, Binance passed a stress test that should give the community extraordinary comfort that their funds are secure,” the exchange said on Friday, adding it was able to fulfil recent withdrawals “without breaking stride”.
Binance has said it holds more than $60bn in assets, sufficient funds to honour withdrawals. However, the company’s disclosures do not include its liabilities, which makes it difficult to ascertain Binance’s financial health. The exchange previously told the Financial Times that all client deposits were backed by corresponding assets and its “capital structure is debt free”.
In a recent interview with CNBC, Binance’s chief executive Changpeng Zhao refused to confirm whether the exchange would be able to finance a potential $2.1bn clawback from FTX, in the event that funds were requested as part of FTX’s ongoing bankruptcy proceedings.
“We are financially OK,” Zhao said, adding he would leave such issues to Binance’s lawyers. “I think our legal team is perfectly capable of handling it.”
In a statement shared by Binance on Friday, the exchange re-emphasised its plans to deliver proof of reserves to its customers but did not commit to a timeline.
“We have reached out to multiple large firms, including the Big Four, who are currently unwilling to conduct a proof of reserve for a private crypto company and we are still looking for a firm who will do so,” the exchange said.
“We embrace additional transparency and we are looking into how best to provide those details in the coming months,” added Binance.
Proof of reserves verified by third-party auditors has emerged as a crucial test of market confidence in crypto exchanges following allegations that FTX fraudulently made off with customer assets.
The willingness of auditors such as Mazars to sign off these reports has been a key factor in soothing nervous investors as crypto exchanges seek to prevent “run on the bank” scenarios of the kind that sank FTX.
FTX was unable to meet client demands for withdrawals before its collapse, revealing a multibillion-dollar shortfall in client funds.
Several audit firms have said they had elevated some or all of their crypto-related clients to the status of “high risk”, triggering more thorough work that will take longer and lead to higher bills.
Mazars has been recruited to verify the reserves of several crypto exchanges including Crypto.com and KuCoin, a more limited task than a full audit of their financial statements. Mazars USA LLP is also the global auditor for the Kraken parent company, Payward Inc.
A representative from KuCoin said they were informed of the decision and were “open to work[ing] with any leading and reputable audit[or]”.
A spokesperson for Crypto.com said the exchange recently completed proof of reserves in collaboration with Mazars, adding it will “continue to engage with reputable audit firms in 2023 and beyond”.
Mazars did not immediately respond to requests for comment.