FTX bypassed regular process for obtaining Australian financial services licence

The Australian Securities and Investments Commission last week suspended the Australian financial services licence (AFSL) for FTX Australia after it went into administration alongside its global parent company, which filed for bankruptcy in the US.

The spectacular collapse of FTX and the downfall of its former billionaire founder Sam Bankman-Fried earlier this month resulted from the cryptocurrency equivalent of a bank run, when questions were raised about its solvency. It was later revealed the company did not have assets worth the billions of dollars claimed.

It is estimated the company has around one million creditors, with a reported 30,000 customers in Australia alone.

Zhong said many investors do not know what AFSLs cover and might assume it would cover cryptocurrency exchanges, giving the company more credibility.

Dr Pamela Hanrahan, a professor of commercial law and regulation at the University of New South Wales, agreed.

This has previously been recognised as a loophole that might pose problems for financial services licensing in Australia.

A change to allow Asic to request information of licensees and determine whether they were still fit and proper to hold a licence was implemented in 2020 legislation passed by the Morrison government, but Asic indicated assessment is not automatic when a licence changes owner.

Experts agreed that regulating cryptocurrency in Australia was the best path to address uncertainty around the exchanges.

Legislation to safeguard cryptocurrency custody and regulate exchanges will be introduced into federal parliament in 2023, and a spokesperson for the treasurer, Jim Chalmers, told Guardian Australia the government was hoping to learn from the FTX collapse.