The Central Bank of Taiwan released an analysis report on the " Causes and Enlightenment of the FTX Bankruptcy Incident of the Virtual Asset Exchange " on the 15th. It believes that there are four main reasons for the bankruptcy of FTX. First, the root cause of FTX’s bankruptcy was not insufficient Liquidity, but the misappropriation of customer assets. The US dollar assets in FTX’s account were misappropriated to only 200 million US dollars, which could not meet the liabilities of 5.14 billion US dollars.
Second, FTX’s internal corporate governance has completely failed. There are major deficiencies such as unaudited financial statements, no board meeting minutes, and insufficient internal control of cash management. SBF, the founder of FTX, uses the funds in the FTX account (including customer funds) as a personal treasury.
Third, FTX actively creates a positive image of being regulated, but its headquarters chooses to provide services to its international customers in the Bahamas, which is less regulated, and does not correctly accept appropriate supervision in the customer's locality, which prevents FTX from having to bear the burden of international The cost of compliance with local laws and regulations of customers can benefit from regulatory arbitrage, and the rights and interests of FTX international customers are not properly protected, which also forms a loophole in the cross-border supervision of international virtual assets.
Fourth, FTX is not a bank, but it attracts money from the public by offering demand deposits with interest rates as high as 8%. FTX customers can enjoy an annual interest rate of 8% for deposits of less than $10,000, and 5% for deposits between $10,000 and $100,000. This attracts many investors who are looking for stable returns , the impact of FTX's bankruptcy has spread to more people.
Five revelations from the FTX incident
In response to FTX's bankruptcy, the central bank listed 5 major revelations. First, the collapse of a large virtual asset exchange is bound to trigger a chain effect in the market; second, virtual asset operators use tokens to engage in businesses such as money absorption, deposits, and lending. These financial tokenization behaviors have not changed the financial nature of the business itself.
Third, the new investment tools created by virtual asset exchanges are no different from financial commodities, which is the operation mode of securities tokenization; fourth, the FTX incident has prompted international calls for relevant financial supervisory agencies to strengthen virtual asset supervision.
The central bank pointed out in the fifth revelation that Taiwanese people should assess the risks themselves if they invest in commodities that are not approved to be provided overseas. It is worth noting that the central bank rarely stated in this revelation that "in the future, the competent authorities should moderately and gradually manage high-risk investments such as virtual assets."
Currently, the Financial Supervisory Commission supervises virtual asset trading platforms in Taiwan in accordance with the "Measures for Preventing Money Laundering and Combating Terrorism on Virtual Currency Platforms and Trading Business Enterprises ". However, because FTX is not an institution approved and established by the Financial Supervisory Commission outside the country, and related products are also provided overseas, the Financial Supervisory Commission has previously called on investors to assess their own risks.
The central bank pointed out that the Financial Supervisory Commission has emphasized that FTX only set up subsidiaries in Japan, Australia, Cyprus and other places. Other countries, including Taiwan, invest in overseas FTX through mobile phones and the Internet. However, in the future, for some high-risk investments such as virtual assets, it will tend to moderate and gradual management, with special attention to investor protection and asset separation (that is, customer asset segmentation management).
