Compliance

Exchange Urges Singapore Regulatory Changes As FTX Collapse Sends Shockwaves

Tom Burroughes, Group Editor, 23 November 2022

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The collapse of FTX and the ripple effects of this saga have prompted a number of reactions in the crypto assets space.

A Singapore-based cryptocurrency exchange, Independent Reserve, has warned that regulatory action must be taken to protect investors following the collapse of FTX, a saga that has rocked the market in the digital assets space.

Independent Reserve said that if responsible advertising were made possible, licensed and regulated entities would be able tell investors clearly about what they are doing in future.

Ironically, the exchange argues that Singapore’s ban on crypto advertising exposes consumers to scams, unregulated exchanges and risky investments because people turn to forums, social media and search engines for information.

Allowing regulated industry players who have gone through the necessary checks and balances to communicate with consumers will drive awareness of safer options for investors genuinely interested in cryptocurrency, Independent Reserve said in a statement. 

“The FTX situation has been a major setback for the whole industry. It highlights the need for greater transparency and accountability, and for a regulatory framework that actually protects consumers,” Adrian Przelozny, CEO of Independent Reserve, said.      

The demise of FTX and the massive losses of its founder, Sam Bankman-Fried, have further hammered the crypto assets space, already suffering from dramatic falls in prices earlier in the year as tech stocks sold off. The saga adds further fuel to the idea that regulations on the space need to be tightened, although, arguably, even existing laws on corporate governance and accounting need to be more rigorously enforced.

More than a week ago, news articles alleged that the balance sheet of Alameda, a crypto hedge fund owned by Bankman-Fried, held billions of dollars’ worth of FTX’s own cryptocurrency, FTT, which was used as collateral in further loans. Such an arrangement would mean that a fall in the value of FTT would hurt both businesses. Crucially, FTT had no value beyond FTX’s longstanding promise to buy any tokens at $22, prompting fears that the whole institution had no basis. Matters took a turn for the worse when rival cryptocurrency exchange, Binance, said it was pulling out of its deal to purchase FTX Trading because it had significant concerns about FTX.

Transparency and open communications
“We have repeatedly expressed that the silence hurts consumers the most. More importantly, it is imperative that we look at practical steps to ensure that we are able to responsibly communicate with investors in Singapore as a licensed and regulated exchange. This will prevent investors from being exposed to and trading with unlicensed entities and avoid a potential repeat of the recent FTX events,” Przelozny said. 

For consumers to have recourse in the event of such incidents, a strict set of risk policies must be set in place and custody must be managed by a qualified team, with external oversight by independent auditors, Independent Reserve said. Client assets must be held on a one-for-one basis to ensure that customers can withdraw all their holdings at any time.

Independent Reserve said it has more than doubled month-on-month growth in its customer accounts, taking advantage Singapore-based FTX users having sought alternative places to hold assets.

Singapore’s first blockchain association, ACCESS Singapore, is assembling industry working groups to rally players towards stronger consumer protection.

“Driving stronger industry collaboration has been a long-standing imperative for ACCESS. This will allow us to collectively discern what regulated crypto exchanges can achieve as a community to address major issues such as consumer protection,” Frederick Fung, chairman of ACCESS Singapore, said. “Whether adopted as voluntary best practices or to meet regulatory requirements, we require a coordinated approach in the industry so both businesses and investors have a very clear picture of how to communicate and where to access safe and reliable investing information.”

Independent Reserve said it is working with a third-party to draw up its proof of reserves, which will validate the assets that it holds on behalf of its clients.

Lasanka Perera, chief operating officer of Independent Reserve, said: “We do not commingle Independent Reserve’s digital assets and funds with those of our clients at any time, nor engage in any lending, borrowing or rehypothecation activities (i.e. pledging assets as collateral for debt).”

“Independent Reserve undergoes regular independent financial and control audits to obtain external assurance. The audit includes verification of all client asset holdings, in both fiat currency and cryptocurrency,” Perera said.

The exchange added that it has not suffered any impact from recent FTX events because it does not have any exposure to FTX, Alameda Research or the FTT token.

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