FTX collapsed a month back, but a new revelation has uncovered a troubling fact. The SBF-led exchange had allegedly obtained an AFS Licence by exploiting a regulatory loophole bypassing the regular process.
Joseph Longo, the chairman of the Australian Securities and Investments Commission [ASIC] revealed at a joint committee.
According to Longo, FTX was reportedly able to circumvent the regular checks and secure an AFSL when it took over IFS Markets in Dec. 2021. The exchange later began operating in Mar. 2022.
This loophole left ASIC without a tooth to inspect corporations the same way it does with the new licensees, the chairman alleged.
FTX “bought [its AFSL] off an existing license-holder. Under current statutory arrangements, it is a normal thing to do,” Longo continued: “we were notified about that position, but it is very easy to trade someone else’s license.”
The ASIC’s chair also added he had specifically requested the former government led by Scott Morrison to close this regulatory gap, but got no response whatsoever.
Longo has lately come under fire from a parliamentary committee on why FTX held a financial services license.
The government has rejected his suggestion that the regulator lacked the power to intervene on the financial services license of the failed crypto exchange.
FTX: Rift Between Government and Regulator
Assistant Treasurer Stephen Jones said the Australian Securities and Investments Commission already had sufficient powers to suspend, cancel, or modify an AFS Licence.
Taking note of the FTX blowout, the government has pledged to bring custodial legislation next year, after a Senate committee chaired by Liberal Andrew Bragg said local custody rules would be an important protection for crypto investors.
Mr. Longo, on the other hand, has reiterated his warnings that crypto was “inherently speculative, volatile and highly risky” and said investors should be “prepared to lose all your money”.
At the time of writing this post, FTX has not responded to the top exec’s claims.
Meanwhile, the UK Treasury is reportedly giving the finishing touches to a framework for the regulation of the digital asset industry following the FTX saga.
The Financial Times reported that the nation’s financial regulators are finalizing its crypto regulation. This would cover restrictions on foreign entities doing business in the UK, methods for handling commercial failures, and rules on product advertising.