According to reports, the now-defunct crypto exchange FTX acquired its Australian license via a regulatory loophole. The Australian Securities and Investments Commission’s (ASIC) chairman, Joseph Longo, is pushing to close the regulatory loophole. FTX acquired an Australian Financial Services License (AFSL) without going through all the necessary procedures owing to the regulatory gap.
Longo was questioned about how and why the body allowed FTX to obtain an AFSL under his watch. He explained that when the exchange acquired IFS Markets in December 2021, it managed to get an AFSL without following the standard procedure. The flaw restricted legal justification for looking into corporations in the way it evaluated prospective licensees. ASIC can thoroughly analyze the business only when a firm applies for a new license.
“[FTX] bought [its AFSL] off an existing license-holder. Under current statutory arrangements, it is a normal thing to do […] We were notified about that position, but it is very easy to trade someone else’s license.”
Longo continued by saying that ASIC directly asked the previous government of Scott Morrison to close this regulatory breach. However, nothing came of it.
In response, Senator Deborah O’Neill highlighted that Australian customers should be concerned about the loophole that gave FTX an ASIC sign-off without being looked into by the agency. Moreover, the senator added that “FTX has had little or no [corporate] governance.” She noted that the exchange paid the price for a license, calling it a “real cowboy.”
Will FTX pay the price?
FTX did not commit a crime as such because it was able to utilize a regulatory loophole. Therefore, it is unlikely that the fallen exchange will face questioning. However, the regulatory bodies might face the brunt of how the loophole was allowed to exist.
US Representative Maxine Waters recently asked FTX founder Sam Bankman-Fried (SBF) to testify before the US House Committee on Financial Services heading. However, SBF recently said that he would address the situation only after he was done “learning and reviewing what happened.”