Australia’s regulator cancels FTX’s local license.

Australia's regulator cancels FTX's local license.

The Fall of FTX Australia: A Lesson in Blockchain Regulation

The Australian financial services regulator, ASIC (Australian Securities and Investments Commission), has made a significant move in the blockchain industry by canceling the financial license of FTX Australia, a bankrupt crypto exchange’s local subsidiary. This action comes as a result of the exchange’s suspension in November 2022, which occurred shortly after the Bahamian-based parent company, FTX, filed for bankruptcy.

Background

FTX Australia held an Australian Financial Services (AFS) license, which allowed it to create derivatives and foreign exchange contracts for local clients. With around 30,000 retail clients and 132 local companies, FTX Australia played a significant role in the Australian blockchain ecosystem. However, the suspension of its license by ASIC marked the beginning of a challenging period for the exchange.

ASIC’s Decision

On July 19, 2023, ASIC officially announced the cancellation of FTX Australia’s financial license, effective from July 14. However, the regulator also granted the exchange the ability to provide limited financial services until July 12 of the following year. During this transitional period, FTX Australia must make arrangements to compensate its clients. ASIC’s decision reflects the need for regulatory oversight in the blockchain industry, ensuring the protection of investors and consumers.

The Role of KordaMentha

In response to FTX’s bankruptcy filing, voluntary administrators from KordaMentha, a Sydney-based investment and advisory firm, were appointed to assist in the restructuring of FTX Australia and its subsidiary, FTX Express. This move aimed to salvage the remaining assets and liabilities of the exchange and explore possibilities for its future.

Misappropriated Customer Assets

According to a report submitted to a United States bankruptcy court, the restructuring chief for FTX’s global entity revealed that they had recovered approximately $7 billion in liquid assets. However, it was estimated that a staggering $8.7 billion worth of customer assets had been allegedly misappropriated. This revelation highlights the importance of robust security measures and regulatory oversight in the blockchain industry.

Rebirth or Reboot?

Despite its tumultuous past, FTX may have a chance to resurrect itself as an entirely new exchange. The restructuring team has been engaging in discussions with potential financial backers who have shown interest in supporting this reboot. This opportunity presents FTX with the possibility of learning from its mistakes and implementing stricter measures to prevent future asset misappropriation.

Lessons Learned

The fall of FTX Australia serves as a cautionary tale for both regulators and participants in the blockchain industry. It underscores the need for comprehensive regulatory frameworks and stricter security protocols to safeguard customer assets and maintain market integrity. The actions taken by ASIC demonstrate their commitment to protecting investors and ensuring the long-term sustainability of the blockchain ecosystem.

Conclusion

The cancellation of FTX Australia’s financial license by ASIC marks a significant event in the blockchain industry. This move highlights the importance of regulatory oversight, investor protection, and the need for robust security measures in the rapidly evolving world of cryptocurrencies and blockchain technology. By learning from the mistakes of FTX and implementing stricter regulations, the industry can continue to grow and provide a secure and transparent financial ecosystem for all participants.

References: – ASIC Media (@asicmedia) on Twitter. Link – Related: Court filing on BlockFi CEO’s risks from FTX and Alameda exposure. Link – Asia Express: China expands CBDC’s tentacles, Malaysia is HK’s new crypto rival. Link