Before the first crypto transaction, finance needs a seat at the compliance table

When an established company considers holding crypto, the compliance questions usually come first. Is the activity permissible? Is the exchange or custodian acceptable? Have the wallets been screened? Are AML and sanctions controls adequate?

Those questions can all have satisfactory answers while the transaction still produces an outcome the institution did not intend.

The reason is that compliance, treasury, finance and risk may all be looking at the same crypto asset but measuring different things. Treasury may see a liquid reserve asset. Finance may see an intangible asset. Risk may see volatility or covenant exposure. Compliance may see an approved counterparty and permissible transaction.

None of those conclusions is necessarily wrong. The problem arises when they are reached separately.

For institutions entering crypto, accounting therefore needs to be part of the pre-transaction control framework rather than a reporting exercise performed after execution. The compliance function does not need to determine the accounting treatment itself. It needs to make sure the accounting answer exists before the transaction is approved.

Four examples can show why.

Market liquidity and accounting liquidity are not the same