According to a report, several months before the spectacular collapse of the FTX, the crypto exchange had already set off alarm bells in the financial regulatory authorities in Australia.
The documents that were recently revealed showed that it was in March 2022 that the Australian Securities and Investment Commission (ASIC) had first begun to look into the local operations of the company.
There had been an article in the Australian Financial Review, which had first prompted concerns about the company.
According to the article, FTX had been planning on launching its operations in Australia in a matter of weeks.
The report said that what had worried staff was a claim that customers would be permitted to purchase crypto with margin loans of about 20 times more than their investment.
A phone call had taken place between FTX’s representatives and the regulatory authorities on March 30th, during which the crypto exchange had discussed its efforts related to regulation.
FTX had also reassured the regulators that it would also issue scam warnings to its clients. However, regulators were still concerned about the company.
In the next few months, there were three notices that were issued by the ASIC to FTX Australia in which the regulators asked the company to share more information about its operations.
The ASIC did not release these notices on the grounds that this could interfere with its law enforcement activities.
Even in October, the internet emails that the regulator had sent within its operations mentioned concerns related to FTX Australia.
On November 11th, 2022, the day when FTX filed for bankruptcy, there was a briefing document issued, which confirmed FTX had been under the surveillance of the ASIC since March.
A spokesperson for the ASIC said that ASIC had been making inquiries about the financial products that FTX Australia was offering since March.
The spokesperson said that some of the issues they had raised were regarding the compliance of FTX Australia with the ASIC’s production intervention order, pricing as well as its clients’ onboarding process.
FTX’s licensing strategy
Before its launch in the country, FTX Australia had not gotten approval from the ASIC. It managed to bypass the licensing requirements by acquiring a company in 2021.
The company in question, IFS Markets, already had an Australian Financial Services License (AFSL). The company had also obtained the license in a similar manner.
A year earlier, it had acquired another company named Forex Financial Services, which already had a license. A similar tactic was employed by FTX for its European arm as well.
It had been established only a few weeks before the company announced its expansion into Australia. FTX had obtained a license from the Cyprus Securities and Exchange Commission (CySEC).
It accomplished this feat by acquiring K-DNA, a company based in Cyprus, which allowed the crypto exchange to offer its services in the 30 countries that are part of the European Economic Area (EEA).
It used the same shortcut in Australia a few months later.