The Tribune

• Sought info on licensee dealings with crypto exchange

• PwC accountants join Bahamian provisional liquidation

• Over 1m creditors caught in ‘unprecedented’ collapse

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Bahamian bankers yesterday predicted the industry has minimal exposure to FTX after regulators demanded the sector disclose all business dealings with the collapsed crypto currency exchange.

Senior executives said the implosion of FTX and its local subsidiary, FTX Digital Markets, was highly unlikely to pose a systemic or widespread risk to the Bahamian financial system with Tribune Business able to reveal the Central Bank ordered all its bank and trust companies to swiftly report any exposures to it before last week’s end.

Kenrick Brathwaite, Bank of The Bahamas managing director, confirmed the Central Bank had moved swiftly to gain a complete understanding of any potential FTX-related risks for the commercial banking system. He forecast that there was “minimal exposure” for the sector that focuses on domestic Bahamian and resident customers.

“That was sent out,” the BISX-listed bank’s chief said of the Central Bank’s information interrogatory. “I don’t think a lot of banks were involved with that. One other bank had some dealings with them [FTX], and another bank was about to have dealings with them, but I don’t think there’s a lot of exposure from the banking side. No, no.”

He was backed by Gowon Bowe, Fidelity Bank (Bahamas) chief executive, who voiced doubt there would be “any surprises for the Central Bank” in terms of licensees who transacted business with FTX. Confirming that all licensees had to provide the requested information by last Thursday night, he said: “The query was custodian, operational or other exposures, be it credit or otherwise. That was the Central Bank seeing if there was anything significant.”

Mr Bowe declined to comment, or speculate, on the size of the bank and trust company sector’s potential exposure to FTX given that there were multiple types of relationship the collapsed crypto exchange could have formed with various institutions.

“I think that for them it would be for information purposes to see if there was any sort of impact to financial stability,” the Fidelity chief executive said. “It was information gathering to understand what was there, but I don’t expect there was any surprise for the Central Bank.”

Mr Bowe based this on the fact that, under international as well as Bahamian law and regulations, the Central Bank receives regular quarterly updates on its licensees’ capital adequacy; market risk exposure; liquidity risk exposure and other critical benchmarks.

Likening the regulator’s move to the data gathering exercise it undertook earlier this year to gauge industry exposure to Russian clients as a result of the sanctions imposed over the Ukraine conflict, he added: “We are caught by the Basle III accords, and from that perspective I think the Central Bank will have a fairly detailed understanding.”

John Rolle, the Central Bank’s governor, did not respond before press time last night to Tribune Business inquiries on how many of its bank and licensees have potential exposure to FTX or the total value of these liabilities.

However, another banking industry source, speaking on condition of anonymity because there were not authorised to speak publicly, said: “From last week the Central Bank asked all of its licensees whether they have exposure. By Friday they had to explain whatever exposure they may have had.

“FTX was trying to deal in the local market. I know they were speaking to people with businesses here, asking them if they wanted to raise capital, go public and list on the exchange. Clearly there were links in to Bahamian customers. There were clearly Bahamians playing in that space. Whether they were allowed to be there is another question.”

Speaking further to FTX’s implosion, and the implications both in The Bahamas and internationally, the source added: “It’s an absolute mess. It’s just the idea of whether people are exposed to FTX. Are there going to be ramifications in the banking sector? It just creates uncertainty in the marketplace, and sends out not ripples but waves. It concerns me, these ripple effects moving outwards.

“I don’t think we’ve seen the end of this. I think entities related to FTX, whether in the crypto space or not, will be impacted by this. It’s not helpful in the financial arena to have people saying all these things. Take it from me: We don’t have any FTX exposure, we don’t have any crypto exposure. There’s nothing to worry about.”

Deltec Bank & Trust was earlier this week forced to vehemently deny speculation, which circulated widely at the weekend, that it was exposed to FTX by virtue of the crypto currency exchange having financed its purchase of Ansbacher (Bahamas) that closed in March 2022.

Deltec described the assertion as “malicious and completely baseless. The latest independent auditor’s report shows that Deltec Bank is well capitalised. Additionally, the bank carries no debt and is not a creditor to FTX....

“While we are all saddened by the news surrounding FTX, we urge the financial services community to act responsibly and not spread rumours that are frivolous and attempt to damage the reputation of financial institutions in the jurisdiction. During such a fragile point in our industry, we must focus on facts and actual events.”

Meanwhile, as previously revealed by Tribune Business, it was confirmed that one of the ‘Big Four’ accounting firms is joining Brian Simms KC, senior partner at the Lennox Paton law firm, as joint provisional liquidators of FTX’s Bahamian subsidiary, FTX Digital Markets.

The Securities Commission, in a statement, said PricewaterhouseCoopers (PwC) Bahamian partner, Kevin Cambridge, and his Hong Kong-based colleague, Peter Greaves, were on Monday approved by the Supreme Court to work with Mr Simms in that capacity.

While FTX’s international headquarters was based in The Bahamas, it had only moved here in September 2021 from Hong Kong. Besides this connection, the appointment of Mr Greaves will also give the provisional liquidation team global reach through having someone based in a different timezone as they begin their efforts to trace and secure assets on behalf of clients and investors who may yet end up with billions of dollars in losses.

The Securities Commission, FTX’s primary Bahamian regulator, added: “Given the magnitude, urgency and international implications of the unfolding events with regard to FTX, the Commission recognised it had to, and moved swiftly, to use its regulatory powers under the Digital Assets and Registered Exchanges (DARE) Act 2020 to further protect the interests of clients, creditors and other stakeholders globally of FTX Digital Markets.

“Over the coming days and weeks, the Commission expects to engage with other supervisory authorities on a regulator-to-regulator basis as this event is multi-jurisdictional in nature.” It added that its probe was extending beyond the Bahamian entity to focus on other key companies in the FTX group, including FTX Trading and Alameda Research.

Asserting that their “main interest, direction and management” resided in The Bahamas, the Securities Commission concluded: “The investigations into these events are ongoing, and the Commission will extend its full assistance to the police if and when required.”

Most of the court documents relating to FTX Digital Markets’ provisional liquidation have been sealed and thus cannot be accessed by the public. However, papers filed in the Delaware federal bankruptcy court relating to FTX’s Chapter 11 protection reveal that it could have as many as one million creditors scattered throughout the world including in The Bahamas.

This number will likely include numerous micro, small and medium-sized (MSME) Bahamian enterprises who previously benefited from the lavish spending by FTX Digital Markets, its executives and the exchange’s co-founder, Sam Bankman-Fried, plus the tight coterie around him. Those entrepreneurs will now be starting to feel “the pinch” of any unpaid debts and loss of FTX-related revenues. Two restaurants this newspaper knows of earned $5,000 and $2,000, respectively, per week from FTX.

The crypto exchange, in its Delaware filings, branded the extent and speed of its collapse - which effectively turned Mr Bankman-Fried from hero to zero in just one week - as “unprecedented”. It added that the FTX co-founder decided to “step aside” as chief executive at 4.30am last Friday morning after the situation became untenable.

“The events that have befallen FTX over the past week are unprecedented,” the crypto exchange said. “Barely more than a week ago, FTX, led by its co-founder Sam Bankman-Fried, was regarded as one of the most respected and innovative companies in the crypto industry.

“The debtors operated the world’s second largest cryptocurrency exchange (through its FTX.us and FTX.com platforms), operated one of the largest market-makers in digital assets (through Alameda Research LLC and its affiliates), and conducted diverse private investment and other businesses.

“FTX faced a severe liquidity crisis that necessitated the filing of these cases on an emergency basis last Friday. Questions arose about Mr Bankman-Fried’s leadership and the handling of FTX’s complex array of assets and businesses under his direction. As the situation became increasingly dire.... at approximately 4:30 am on Friday, November 11, after consultation with his own legal counsel, Mr Bankman-Fried ultimately agreed to step aside.”

John J. Ray, who took over at failed energy speculator, Enron, almost two decades ago was named to replace Mr Bankman-Fried and lead the restructuring. He and his team were said to have “worked around the clock” since taking over to secure assets for the benefit of creditors.

“As set forth in the debtors’ petitions, there are over 100,000 creditors in these Chapter 11 cases. In fact, there could be more than one million creditors in these Chapter 11 cases,” FTX revealed in its filings. “The statutory stay and its enforcement are critical to ensuring that FTX, under the leadership of Mr Ray, can secure and marshal its assets, and conduct an orderly process under centralised management to reorganize or sell FTX’s complex array of businesses, investments and property around the world for the benefit of its stakeholders.

“Immediately upon appointment, Mr Ray began working with FTX’s external legal, turnaround, cyber security and forensic investigative advisors to secure customer and debtor assets around the world, including by removing trading and withdrawal functionality on the exchanges and moving as many digital assets as possible to a new cold wallet custodian, while simultaneously responding to a cyber attack that occurred on the petition date.”