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The collapse of Sam Bankman-Fried’s FTX has opened up more regulatory scrutiny. Accordingly, the California Department of Financial Protection and Innovation (DFPI) aims to investigate the “apparent failure” of FTX.

Following the FTX crisis, the financial regulator aims to expand its oversight responsibilities in the crypto space within its jurisdiction. The regulator is empowered by law to oversee California’s lending and banking laws, including consumer financial protection and securities laws.

Part of the DFPI statement read, “The regulator expects every entity offering securities, lending, or other digital financial services operating in California to comply with its financial laws.”

Furthermore, the FTX issues started over the past week after Binance’s CEO, Changpeng Zhao, revealed that his exchange would sell off all its FTT tokens, FTX’s native exchange coin.

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The CEO’s statement caused panic among investors, with most of them withdrawing their assets en masse. As a result, the FTX platform witnessed massive outflows, forcing the firm to halt withdrawals.

However, Binance struck a non-binding deal with the FTX founder to acquire the troubled exchange amid its liquidity crisis. But the world’s largest crypto exchange pulled out of the agreement, citing corporate guidelines and reports of mismanagement of customers’ funds.

The embattled CEO of FTX, Sam Bankman-Fried, noted that he is trying to raise funds to avoid the looming liquidity crisis, with a Bloomberg report showing that the company is short by close to $8 billion.

Meanwhile, the DFPI did not reveal many details about the latest investigation or whether the probe has to do with the Bahamas-based FTX or its United States subsidiary.

DFPI Cautions Consumers over Crypto Risks

The financial regulatory body also stressed the need for consumers and investors to be aware of the high risks involved in crypto-related investment and should not expect any reimbursement.

In addition, the department warns Californians that most digital asset service providers still need full disclosure to warn potential investors of the risks involved in crypto trading.

According to the DFPI, the activities of crypto service providers are regulated differently than those of banks and other financial institutions that encourage affected persons to file complaints with the authorities.

FTX suffered another blow in another development after the financial authority in the Bahamas, the Securities Commission of the Bahamas (SCB), froze the firm’s assets. It is worth noting that FTX’s head office is based in Nassau, The Bahamas.

After the regulator suspended FTX’s license, it got approval from the country’s Supreme Court to appoint a provisional liquidator. Interestingly, in another separate event, the United States Securities and Exchange Commission (SEC) is reported to have reopened its investigation into the troubled FTX.

The Commodity Futures Trading Commission (CFTC) and the Department of Justice (DOJ) have all launched separate probes into the exchange’s activities. In addition, last October, the Texas Securities Board was investigating Sam Bankman-Fried and his company over allegations of securities violations in the state.

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George Ward

By George Ward

George Ward is a crypto journalist and market analyst at Herald Sheets, known for his engaging articles on the latest digital currency trends. With a background in finance and journalism, he presents complex topics accessibly. George holds a degree in Business and Finance from the University of Cambridge.