Parliamentary committee raises concerns over AFSL transfers with minimal oversight

This week, Parliament’s corporations and financial services committee released a report highlighting significant flaws in the Australian Securities and Investments Commission’s (ASIC) oversight and regulatory capacity concerning off-market transfers of licences, shedding light on the deficiencies in the regulator’s ability to effectively monitor such transactions.

The report itself followed the collapse of the cryptocurrency exchange FTX Australia.

“The committee is concerned that hundreds of ASIC licences are being transferred yearly with minimal oversight of whether the new owners have appropriate standing to hold an ASIC licence,” the report reads.

The committee added that, according to ASIC’s observation, the corporate regulator would require significantly more resources to assess all licence transfers and there would be costs to licence operators participating in the process.

“The committee is particularly concerned that ASIC did not know if any entities with unsuccessful licence applications or suspended licenses could subsequently have acquired a licence through a transfer,” the report said.

To address the cited issues, the committee recommended that ASIC provide information in its annual report on licence transfers.

Moreover, it tasked ASIC with undertaking and publishing an audit to determine the number of instances where an entity has acquired an ASIC licence through a transfer, where the entity previously had the same licence type application/assessment refused, withdrawn, rejected, cancelled, or suspended.

The corporate regulator has also been encouraged to examine the transfer of all high-risk licences, while pursuing a review of the economic incentives for companies to pursue licence transfers rather than apply for ASIC licences undertaken by either Treasury, the FRAA or another body.

ASIC suspended the Australian Financial Services Licence (AFSL) of FTX Australia on 16 November 2022. This action followed the collapse of the US-based FTX cryptocurrency exchange and the voluntary administration of FTX Australia on 11 November 2022.

The Guardian reported last November that FTX Australia had acquired an AFSL by assuming control of IFS Markets, a company that already possessed an AFSL.

Responding to the committee’s questions at a public hearing about how FTX obtained the ASIC licence, ASIC responded that that “is one of the most difficult and highly prized licences in the market” and that its “ability to scrutinise those off-market transfers of licences is very low to non-existent”.

The committee found that ASIC approves approximately 1,000–1,400 new AFSLs each year, while about 200 AFSLs are transferred yearly.