PROOF Act

The "Proving Reserves Of Others' Funds Act," or PROOF Act, aims to bolster the protection and transparency of customer assets held by digital exchanges and digital custodians . It mandates that these entities establish robust accounting standards and procedures designed to safeguard customer " covered assets ," ensuring minimal risk of loss and prompt access. A key provision requires the strict segregation of customer assets from the exchange's own funds, generally prohibiting co-mingling or their use to secure other accounts, with limited exceptions for operational necessities or explicit customer consent. The bill also introduces comprehensive attestation requirements , obligating digital exchanges and custodians to obtain monthly independent attestations verifying their proof of reserves and liabilities. These attestations must include cryptographic evidence of asset control and verifiable proof of liabilities, which are then submitted to the Under Secretary of the Treasury for Domestic Finance and made publicly available. The Public Company Accounting Oversight Board and the American Institute of Certified Public Accountants are tasked with jointly developing an industry standard for these attestations within 18 months. Failure to adhere to either the asset protection standards or the attestation mandates will result in escalating civil penalties , calculated based on the number of users or total assets under management, and public disclosure of non-compliant entities. An appeals process is established, allowing for penalty waivers if non-compliance stems from the auditing firm's actions.