Daniel Mitchell, a senior account manager at Equithy, expects that the Australian Securities and Investments Commission will make major changes to its regulatory process. Commonly referred to as the ASIC, the commission recently canceled FTX Australia’s financial license. FTX Australia was operating as a local subsidiary of the now-bankrupt crypto exchange when it used a loophole to get back its license.
FTX Australia Loses Financial Services License
The ASIC announced that the exchange’s financial license had been canceled on July 19. The cancelation was implemented on July 14, and the company will have permission to provide a limited range of services until July 2024. However, these services only allow clients to terminate existing derivatives contracts.
Over the course of the next year, the subsidiary has to compensate clients as per orders by the ASIC. Prior to the cancelation, FTX’s Australian branch served over 30,000 retail investors. Moreover, 132 local companies were seeking the exchange’s services.
FTX Australia has been in hot water for quite some time now, Equithy’s Daniel Mitchell comments. Problems began around mid-November 2022 when the ASIC suspended its financial services license. The AFS license allowed the exchange to create foreign exchange and derivatives contracts for its local clients. FTX Australia’s license was suspended soon after FTX, which is based in the Bahamas, filed a bankruptcy claim.
After the head company filed for bankruptcy, Sydney-based investment and advisory firm KordaMentha appointed administrators to the case. They were to help restructure the local branch and FTX Express, a subsidiary.
The Downfall of FTX
Although FTX was once considered a major global exchange, it experienced a major downfall last year in November. As the founder and CEO Sam Bankman-Fried’s questionable business practices came to light, FTX couldn’t bear the sudden pressure due to extensive withdrawals. This led to an immediate collapse.
After FTX’s collapse, the founder faced numerous charges, while other top executives pled guilty to the charges. Last week, a parliamentary committee reported that the commission needs to practice more scrutiny to keep track of how licenses are transferred. The committee also said that the ASIC should conduct an audit of current license holders.
Parliamentary Committee Raises Concerns
Last Monday, the committee released a report stating that the issue surrounding FTX’s acquisition of a financial services license raises major concerns regarding regulation. According to Equithy’s Daniel Mitchell, FTX Australia took advantage of a loophole in the system that allowed it to evade the current process of acquiring a license. Instead, it took over a company that already had one.
Before FTX collapsed, the ASIC didn’t evaluate its ability to hold a license, which it acquired in December 2021. It allowed the exchange to provide a variety of services to retail clients and companies.
Daniel Mitchell expects that ASIC will develop a stricter method to ensure that all companies securing a license are capable enough. Currently, the ASIC explained that the law didn’t allow a detailed assessment of license transfers. However, this may change soon enough.