FTX unravels

The unraveling of crypto exchange FTX, which is headquartered in The Bahamas, is amounting to a major reputational threat for this jurisdiction, and has local authorities and average citizens alike trying to wrap their minds around the extent of the impact.

In a Twitter feed yesterday, Binance, the largest cryptocurrency exchange in the world, backed out of its plans to bail out the troubled FTX, owned by Sam Bankman-Fried.

The young crypto entrepreneur has assets in The Bahamas and broke ground earlier this year on FTX’s global headquarters in western New Providence after FTX secured the approval of Bahamian regulators, and convinced government authorities that its decision to choose this country as a base was a major win for us.

In April, Prime Minister Philip Davis tweeted, “Since moving to our shores, FTX has left positive footprints throughout The Bahamas. Today, they continue to make positive impressions with the groundbreaking of their new headquarters. I look forward to attending the grand opening of the FTX Bahamian headquarters.”

Several days later, Davis addressed the FTX-sponsored Crypto Bahamas conference at Baha Mar Convention Centre, saying the arrival of FTX underscores that The Bahamas is ready to be a home for global leaders in the crypto space.

“The Bahamas, and Bahamians all across our archipelago, are ready and willing to partner with you to do business in our great country,” the prime minister said.

Bankman-Fried, who at the time had a net worth of $24 billion, said The Bahamas’ regulatory regime made it an attractive destination for his business.

He said the work that has been done by the Securities Commission of The Bahamas and the government went a long way in helping FTX to make the decision to move its company to this country.

Bankman-Fried said other countries were looking at what The Bahamas has done with the hope of attracting digital asset firms to their own jurisdictions.

“A lot of other countries are incredibly jealous of what you guys have done,” he said.

“I’ve been on the phone with a number of regulators and I think about half the time the call starts with them saying ‘walk us through what The Bahamas did and how can we do that’.”

Now, just over seven months later, FTX is undergoing a dramatic collapse.

CNN Business reported that Bankman-Fried lost 94 percent of his wealth in a single day.

CNBC noted the disintegration of the Binance-FTX deal is the latest chapter in a shocking collapse that’s rocked the crypto world this week.

Bloomberg, meanwhile, reported that US regulators are investigating whether FTX.com mishandled customer funds, and are looking into the firm’s relationship with other parts of Bankman-Fried’s crypto empire.

There were reports that Bankman-Fried has filed for bankruptcy.

The stunning developments relating to FTX have naturally raised questions about the implications for The Bahamas.

Officials who could speak to this were unreachable yesterday or declined to comment.

Acting Prime Minister Chester Cooper did not offer much of a comment, saying, “This is a matter for the regulators and there are international implications. We have a well-established regulatory regime with a top-notch reputation in international financial services.”

Securities Commission Executive Director Christina Rolle was one of the officials who could not be reached.

In July, she was quoted as saying, “If you look at the [entities] coming to The Bahamas, what they are seeking is best-in-class regulation.

“…In this jurisdiction, we said we want to attract firms who want to be partners in a robust regulatory framework. That was a very strategic decision on our part, and I think what you are seeing is we want to attract larger firms to The Bahamas that want a robust regulatory environment.”

In May, Attorney General Ryan Pinder said in the Senate “… as with any new industry, particularly one that’s changing so quickly, it’s important to protect our reputation and to protect consumers, so we know that getting our policies and regulations right matters enormously to setting ourselves up for success and to protect the jurisdiction.”

But many are now left wondering whether regulators who approved FTX’s presence in The Bahamas did proper due diligence and monitoring of its activities.

We suspect there is much that will unfold in the FTX saga today and in the coming days with The Bahamas squarely at the center.

We expect, too, that there will be many lessons learned for this country as it promotes itself as a reputable digital assets jurisdiction.

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