ASIC admits FTX benefited from license loophole

Mike Taylor

Managing Editor/Publisher, Financial Newswire

6 December 2022

The Australian Securities and Investments Commission (ASIC) has admitted that a regulatory loophole exists which allowed collapsed crypto exchange FTX to side-step applying for Australian Financial Services License (AFSL) by purchasing an existing AFSL holder.

ASIC chairman, Joe Longo confirmed the existence of the loophole and the manner in which it had been utilised by FTX while giving evidence to a hearing of the Parliamentary Joint Committee on Corporations and Financial Services.

“How did they get their existing license? Well, they brought it off an existing license-holder and under current statutory arrangements that was a lawful thing to do,” Longo said.

“We were notified of that acquisition, but It is very easy to buy someone else’s license and trade.”

Asked to expand on the issue, ASIC chief operating officer, Warren Day, it depends on the nature of the (AFSL) purchase – “if they take control of the license there is no look at it but if there is a change to responsible people we would take a look”

“But the law does not permit us to look at the new license-holder and we see that as highly problematic,” Day said.

The committee was later told by ASIC officers that the companies which acquired AFSLs were not compelled to give particular information to the regulator unless they were asked.

“We would have to proactively go and ask for that information,” the ASIC officers said noting that around 200 AFSL changes occurred each year and that in many such instances this did not involve a change of the “fit and proper” people.

“What we find with these organisations is that there are plenty of highly qualified people who are willing to go and work for them. When we conduct a review there are fit and proper people but those in ultimate control may not be fit and proper people,” the committee was told

“There are certain people “for hire” who have been judged fit and proper people.”