In his first public statements since the collapse of Bahamas-based FTX, Prime Minister Philip Davis said in the House of Assembly yesterday that based on the analysis and understanding of the FTX liquidity crisis, to date, “we have not identified any deficiencies in our regulatory framework that could have avoided this”.
“In fact, it was because The Bahamas already had in place a regulatory framework for digital assets and digital assets businesses that the regulator was able to take immediate steps in order to protect the interests of clients, creditors, and other stakeholders globally,” Davis said.
As the dramatic implosion of FTX played out, the Securities Commission of The Bahamas (SCB) announced last Thursday it has frozen the assets of FTX Digital Markets and related parties, suspended the registration, and applied to the Supreme Court of The Bahamas for the appointment of a provisional liquidator.
Davis told Parliament, “I believe, as do many others, that blockchain technology and smart contracts will continue to play an important and growing role in the world’s financial architecture, and further.
“I have every confidence that The Bahamas will emerge from the proceedings involving FTX – proceedings taking place here as well as in other jurisdictions – with an enhanced reputation as a solid digital assets jurisdiction.”
The prime minister also cautioned “those who care about our country’s reputation” to tread carefully when they speak about the complex matters involving FTX.
“There is a reason that The Bahamas won international praise for the approach we have taken, to date, on digital assets, and there is also plenty of room to have a healthy debate about the industry, but this is a story that has the world’s attention, and those who use it to mislead and score cheap political points are no patriots,” he said.
Davis did not name anyone in particular.
On the weekend, Opposition Leader Michael Pintard called on the government to publicly address the FTX issue.
“We are all shocked by the daily revelations that are now becoming known nationally and internationally and call upon the government to provide the investing public a clear and cogent statement on the matter and the steps being taken to guard against the jurisdictional fallout and to shore up investor confidence,” Pintard said.
The development of the digital assets industry was a priority item on the Davis administration’s agenda after it assumed office last year.
FTX opened an office in The Bahamas a month after the Progressive Liberal Party was elected.
At the time, the prime minister said, “This is a time for big ideas and paradigm-shifting initiatives. Yesterday, the world’s third-largest cryptocurrency exchange relocated to our shores, sending a clear signal to the rest of the fintech world that The Bahamas is open for business.”
In early 2022, the government launched a policy white paper, outlining “The Future of Digital Assets in The Bahamas”. Davis said it “sets out our vision and the supporting framework ‘to transform The Bahamas into the leading digital asset hub in the Caribbean, and a global leader in the progressive regulation of businesses in this profoundly innovative space’.”
In April, 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.
But a great deal has changed since then.
The prime minister noted in Parliament yesterday that The Bahamas did not have sole oversight of FTX’s worldwide operation.
In court filings in the United States on Tuesday, Brian Simms, KC, one of the joint provisional liquidators appointed to oversee the winding up of FTX, said the entire brand of FTX was ultimately operated from a single location, The Bahamas.
Davis said in the House, “As you know, the FTX group has one entity which is regulated in The Bahamas, FTX Digital Markets Limited. This entity’s registration has been suspended and it was put in provisional liquidation. The FTX group and affiliates all now appear to be subject to insolvency proceedings pending in Nassau and in the United States.
“There are reports that FTX has mismanaged customer assets, and numerous investigations have begun into the reported actions and actors in several countries, including by our own Securities Commission and the Financial Crimes Investigation Branch.
“… I have given directions that these proceedings and investigations are to be of the highest order and given precedence, given the amounts involved, and because committed and rigorous oversight is of national importance.
“We will be coordinating these efforts with duly appointed authorities in other jurisdictions.”
The prime minister said a key priority of the government “is the full and absolute protection of the rights and remedies of The Bahamas and our citizens, to minimize losses and to mitigate the overall impact caused by any misconduct”.
He added, “There have been both booms and busts in the world of crypto, and this year has been a significant bust – with total market capitalization falling from $3 trillion to $800 million or lower; the steep sell-offs and declining volumes have led analysts to describe this time as a ‘crypto winter’.”
In Parliament yesterday, Pintard said he was stunned at the “brevity” and the “hollowness” of the prime minister’s communication.
“We are facing a substantial risk to our financial services sector and one would have expected that since the international community’s eyes are trained on the Commonwealth of The Bahamas, that on this occasion that this Davis-Cooper administration would have thought it necessary to break its silence much earlier and with a far more comprehensive statement given the gravity of this issue,” he said.
“Madam Speaker, whenever there is a vacuum, a silence or absence of information, and putting in context of a serious situation as a meltdown of a massive company that is registered here in The Bahamas, that vacuum will be filled by others, many of whom are enemies of the Commonwealth of The Bahamas.”
The prime minister then rose to his feet, saying Pintard needs to be “very careful” because he did not understand what is happening.
“Facts are unfolding,” Davis said. “You don’t jump ahead of yourself to make these cheap, political shots. Understand what the facts are. They’re still unfolding.”
Davis admonished the opposition leader to be careful what he is saying given that the matter is now before the courts.
“I tried to be sanguine, so as not to say that I’m influencing the [court proceedings]. That’s why brevity. That’s why I just set out the salient facts, that’s why, and that’s what responsibility requires on my part.”
But Pintard insisted that the “brevity” and “hollowness” of the prime minister’s communication opened the door for the country’s enemies to mischaracterize the regulatory environment in The Bahamas for their benefit.