The collapse of cryptocurrency trading company FTX while it held an Australian financial services licence (ASFL) has led a parliamentary committee to recommend more scrutiny of the transfer of such licences and an audit of current licence holders.
In a report released on Monday, the committee said FTX’s ability to acquire what was a “difficult and highly prized” licence “raises significant concerns” about the regulation of the licences.
When FTX went into administration in November 2022, Guardian Australia reported the company had bypassed the regular process for obtaining a financial services licence in Australia by taking over a company that held one.
The Australian Securities and Investments Commission did not assess FTX’s fitness to hold a licence prior to its collapse.
FTX obtained an AFSL in December 2021, allowing the company “to deal in, make a market for and provide general advice relating to derivatives and foreign exchange contracts to retail and wholesale clients”, Asic said when it suspended the licence.
After Guardian Australia’s reporting, the parliamentary joint standing committee on corporations, chaired by the Labor senator Deborah O’Neill, began questioning Asic about this loophole in the licensing scheme.
Asic told the committee there are approximately 200 licence transfers a year via the method FTX used to acquire its licence, but said the law did not allow a thorough assessment.
“The law as it stands at the moment does not allow us to do an assessment de novo of the new licence holder; it’s something we’ve raised previously through previous reviews,” Asic’s chief operating officer, Warren Day, told the committee in December. “We can see that in certain licensee types – derivatives from foreign exchange contracts are definitely one of those [types] that is highly problematic.”
Asic later told the committee that a change in the law would “require significant additional resources”, later stating it would be the equivalent of three to four additional full-time staff.
The committee has recommended Asic include information in its annual report on the number of licence transfers, and conduct an audit of occasions when an entity had acquired a licence through a transfer or a change in control after previously failing to obtain the same licence type.
The committee also recommended Asic examine the transfer or change in control of all high-risk licences such as market licences, and that there be a review of the economic incentives for companies to acquire a licence through a transfer or change in control, rather than through applying for it.
Guardian Australia has sought comment from Asic.
Asic suspended the licence held by FTX’s former rival cryptocurrency exchange Binance in April.
