By Michael Scott
The Australian Securities and Investments Commission (ASIC) chair Joseph Longo, demonstrated the need to seal regulatory loopholes exploited by the embattled FTX to secure an Australian operating license.
Addressing the corporations and financial services committee, Longo explained to parliamentarians present that FTX exploited the regulatory loophole when securing the Australian Financial Services License (AFSL).
Longo was put to task by the parliamentarians questioning potential laxity in executing ASIC oversight duties. The members argued that the existing authorities failed in their mandate to protect Australians whose digital wealth is trapped and potentially forever lost in the bankrupt FTX empire.
How FTX Bypassed ASIC Investigation
Longo’s response to the concerns raised in the joint sitting defended ASIC in letting troubled Bankman-Fried FTX acquire the AFSL. Although Longo admitted the acquisition was under the regulatory body’s watch, ASIC confronted hurdles that denied ASIC complete proper checks.
Longo navigated the grilling by explaining that FTX bypassed the licensure requirements when it successfully acquired IFS Markets. The takeover, completed in December 2021, enabled FTX to obtain the AFSL. ASIC chairman revealed to the committee it would later change three months later to operate as FTX Australia in March 2022.
Longo clarified as the committee dug into the FTX debacle that ASIC lacks legal grounds to scrutinize corporations in manner matching investigations completed before licensing. Longo demonstrated that FTX acquired AFSL when it took over an existing holder. He regretted the statutory arrangements permitting the trading of licenses.
Longo confessed in the Monday session that ASIC was notified of FTX acquiring the license but lacked legal grounding to halt the process. He challenged the parliamentarians to plug the regulatory gap since ASIC’s previous request to the Scott Morrison government was unaddressed.
Longo laments the current regulatory environment only tasks ASIC to examine the applicant company when seeking new licenses. The process involves ascertaining if the company has adequate capital controls and a compliance system.
Rallying Committee Support to Seal Loophole
Surprised by the revelation of the existing loophole, Senator Deborah O’Neill confessed that allowing FTX operations with ASIC sign-off to operate left Australian consumers vulnerable to exploitation.
Senator O’Neill challenged members present to restore sanity in the Australian crypto space. The senator likened the account to a cowboy who entered Australia, settled the AFL price, and operated with little corporate governance.
Senator concluded that Australian consumers are vulnerable to huge risk unless the regulatory loophole is extinguished.