FTX Australia had its Australian Financial Services Licence suspended in November after the failure of the US FTX cryptocurrency exchange and the firm entering voluntary administration

The federal government is facing a call to probe a flaw in financial regulation which permitted a now-collapsed cryptocurrency company to operate in Australia.

FTX Australia had its Australian Financial Services Licence suspended in November after the failure of the US FTX cryptocurrency exchange and the firm entering voluntary administration.

FTX Australia obtained its licence from the Australian Securities and Investments Commission (ASIC) by taking over a firm, IFS Markets, which already held a licence.

Parliament’s corporations and financial services committee on Monday released a report into ASIC licence transfers, underscoring FTX Australia’s move as exposing a loophole in rules.

The Australian Securities and Investments Commission told the committee it was “one of the most difficult and highly prized licences in the market” and the regulator’s ability to probe off-market transfers of licences was “very low to non-existent”.

The committee found 797 transfers of AFSLs by “change of control” between 2019 and this year – where a firm purchases another or passes corporate control thresholds.

The committee is worried that hundreds of ASIC licences are being transferred annually with least supervision of whether the new owners have proper standing to hold an ASIC licence, according to the report.

The ASIC should annually report on the number of licence transfers and changes of control, the committee added.

It also asked the ASIC to conduct an audit of where an entity has obtained a licence through a transfer or a change in control, where the entity earlier had the same licence type application or evaluation refused, withdrawn, denied, cancelled or suspended.

The committee proposed there be an evaluation of the economic incentives for firms to obtain an ASIC licence via a transfer or change in control, rather than apply for that licence.

This evaluation should include potential changes to the law that may lessen the time and costs of licence applications and transfers for the Australian Securities and Investments Commission and industry, the report added.

In February, the government announced a number of steps including strengthening enforcement of crypto providers and boosting consumer safeguards.

The failure of FTX, one of the world’s biggest cryptocurrency exchanges, left thousands of Australian investors out of pocket.

Under the changes, the Australian Securities and Investments Commission announced it would expand its cryptocurrency team and guide consumers about financial risks, while the government will set standards for crypto asset providers.