Australian Financial Services License

ASIC's Joseph Longo pointed the finger at a loophole that allowed FTX to acquire an Australian Financial Services License under its watch.

Joseph Longo, the chairman of the Australian Securities and Investments Commission (ASIC) is calling for a regulatory loophole to be closed that allowed FTX to acquire an Australian Financial Services License (AFSL) in the country without the full suite of checks.

According to a Dec. 5 report from the Australian Financial Review, Longo made the comments while speaking at a joint parliament committee on corporations and financial services on Monday local time.

A major topic the committee dug into was of course the recent FTX and Alameda Research meltdown led by the now-troubled founder Sam Bankman-Fried.

Longo defended his regulatory body when being grilled on how, and why the regulator let FTX acquire an AFSL under its watch, explaining that a regulatory loophole prevented ASIC from intervening or conducting the proper checks.

FTX was reportedly able to bypass the regular process for obtaining an AFSL when it took over IFS Markets in Dec. 2021, which effectively gave it access to its license. FTX Australia later began operating in Mar. 2022.

Longo said this loophole provides ASIC with no legal grounding to investigate corporations in the same way that new licensees are scrutinized.

FTX “bought [its AFSL] off an existing license-holder. Under current statutory arrangements, it is a normal thing to do,” Longo said, adding: “we were notified about that position, but it is very easy to trade someone else’s license.”

Longo also added that ASIC had specifically requested the former government led by Scott Morrison to plug this regulatory gap, but the issue was ultimately left unaddressed.

As it stands, ASIC is only able to examine a company back to front when it's applying for a new AFSL, and therefore determine whether it has adequate compliance and capital controls in place.

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In response, Senator Deborah O’Neill stressed that the loophole allowing FTX to essentially have an ASIC sign-off without being investigated by the regulator presents a worrying prospect to Australian consumers.

“In addition to trading of crypto in and of itself, just because you have an AFSL ticked off by ASIC, there is no guarantee there is integrity?”

“FTX has had little or no [corporate] governance. We are talking about a real cowboy who came in, paid the price [for an AFSL] ... An AFSL was ticked off for all intents and purposes from ASIC ... but there is huge risk here,” she added.