Three years after the collapse of the Bahamas-headquartered cryptocurrency exchange FTX, the country continues to feel the impact and has not yet recovered from the resulting reputational damage, Christina Rolle, Executive Director of the Securities Commission of the Bahamas, said in a recent interview.

This underscores the long-term consequences that such a widespread financial scandal can have on a nation’s credibility.

Speaking to Henri Arslanian for his “The Future of Crypto Compliance” podcast series, Rolle reflected on the aftermath of the FTX collapse on the Bahamas. She noted that while most regulators worldwide and those familiar with the crypto space understand that the situation was handled appropriately, parts of the public still associate the country with FXT, a negative perception that’s is likely to persist.

“I don’t know that [the Bahamas] are fully recovered [from the FTX saga],” Rolle said.

“I think that there are quarters that will still hold our feet to the fire over that. The truth is, we handled that very well, and our legislative framework was, in fact, very strong in order to address that situation. Certainly, that’s usually the sentiment among regulators. That’s usually the sentiment among people who have a deep knowledge of the crypto world as well.

But then there’s the wider public that probably doesn’t have that level of inside knowledge, and I think we’re still fighting those perceptions. We probably will always be fighting those perceptions in the same way that we’ll always be fighting the perception that we’re a tax haven or that we’re a money laundering center or something like that.”

Setting up in the Bahamas

Rolle retraced FTX’s entry into the Bahamas, recalling that the company first approached regulators after the jurisdiction introduced the Digital Assets and Registered Exchanges (DARE) Act in late-2020, governing digital asset businesses in the country. At the time, the Bahamas was among the few jurisdictions in the world to have a proper regulatory framework for digital assets.

“We passed the legislation in December of 2020, and [FTX] started to approach the Bahamas in February 2021,” Rolle recalled.

“We thought we would develop this framework and we would have a trickle of exchanges globally who would be interested, but we never thought in our wildest dreams that we would attract perhaps the second largest crypto exchange in the Bahamas.”

It took roughly seven months to get FTX’s application to reach a stage of approval in-principle as well as extensive back and forth to ensure compliance with its legal obligations.

Initially, FTX planned only to obtain to a license in the Bahamas. However, after China clamped down on cryptocurrencies in late-2021, FTX decided to make the Bahamas its official headquarters and moved related entities, such as Alameda Research, to the Bahamas as well.

The government welcomed the development, believing that the company’s presence would attract other crypto firms. At the time, the move was seen as a success as a reputable company was choosing the Bahamas as its base.

FTX quickly began influencing the local economy, particularly in the real-estate market.

“This was an entity that, within a very, very short space of time, they probably acquired more than US$200 million in real estate in probably less than a year,” Rolle said. “That’s a game changer for the economy of the Bahamas in such a short period of time.”

The collapse

Rolle then recounted the events of November 2022, when FTX collapsed, explaining that Bahamian regulators first learned about the company’s problems through social media.

During a call with Ryan Salameh, former CEO of FTX Digital Markets, the FTX subsidiary based in the Bahamas, and Ryne Miller, FTX US’s former general counsel, the executives admitted to fraudulent activity, leading Rolle to move quickly to suspend FTX’s license and place the company into liquidation to protect customers and creditors.

“We had to mobilize quickly to prepare ourselves to go to court the next day,” Rolle explained.

“We made the internal decisions we needed, we needed to identify a liquidator … and we had to go through some enforcement protocols to do that … So I filed a letter with the police, basically an initial criminal complaint to trigger an investigation on their end [the very next day] … and put them into liquidation. I was having conversations with the Securities Commission, the Police, having conversations with liquidators, also trying to get those items coordinated.”

Because the Securities Commission placed FTX Digital Markets into liquidation, Bankman-Fried rushed to file for Chapter 11 bankruptcy in the US before the end of the same day. This triggered a broader wind-down and restructuring process for FTX entities worldwide.

In the days that followed, the Securities Commission took control of FTX’s digital assets for safekeeping, describing this as an unprecedented move for a regulator.

“We [had] the legislative power to take these assets into our custody but I knew that we had to think through this process very, very quickly, so I spent a couple hours opening a wallet with Fireblocks to receive these assets,” Rolle recalled.

“I needed a specific litigator who could go before a court and explain to them what these assets were, first of all, and why it is that we needed to take them into our custody for safekeeping, which was an extraordinary act and something that regulators really aren’t used to doing, or used to thinking that they would have to do. All of this was new territory. Our primary concern at that point was protecting the interests of clients and creditors.”

At that point, police had already confiscated Bankman-Fried’s passport, as well as that of Gary Wang, former CTO and co-founder of FTX.

Authorities were concerned they might not gather enough evidence within the 72-hour limit required to file charges, and if they failed to do so, Bankman-Fried and Wang could flee, especially given the Bahamas’ proximity to Cuba, which has no extradition treaty.

In hindsight

Reflecting on the aftermath, Rolle said the regulator did well in sticking to clear principles rather than trying to plan for every possible scenario.

However, in hindsight, she believes the regulator should have put both FTX Digital Markets and FTX Trading into liquidation. Though FTX Digital Markets was the main regulated entity underpinning the group’s international exchange operations, FTX Trading was the parent company and controlled multiple subsidiaries including US entities.

Limiting the action created unnecessary jurisdictional conflict between the US and the Bahamas, triggering a power struggle with US courts and regulators over assets, decision-making, and control of the broader FTX group.

“[The whole US/Bahamas issue] created a fight that was unnecessary, … and an unnecessary territorial fight,” Rolle said.

“Now, do I think that we had, that we have the manpower in terms of the resources to have dealt with that entire, the entire scope of FTX globally? We probably would have had to bring in resources … lawyers, crypto experts, and others from the US … because we don’t have enough of them in the Bahamas. But certainly, I think that had we made that move, it could have gone a lot smoother.”

The future of Digital Assets in the Bahamas

Since the collapse, Rolle said the Bahamas has introduced additional digital asset legislation, and finalized a new framework in 2024. She expects global regulation to increasingly converge as crypto becomes more widely accepted and institutional players enter the space.

“What I see right now is a shift,” Rolle said.

“About four years ago, it was very much focused around the crypto bros. Now you have a lot more institutional players in the space; institutional players that are used to the regulation of traditional finance. And so they expect regulation [in the crypto space]. Now you see regulation becoming more thoughtful. It’s converging around principles. And so I think that’s the future. I think crypto, certainly blockchain-based activity is here to stay … especially tokenization.”

Looking ahead, Rolle sees the Bahamas as a hub for crypto companies looking to operate outside the heavily regulated major markets, like the US, or the European Union (EU).

“If someone wants to be regulated or someone wants to do business with US persons, they will need to be regulated in the US and they would need to seek that. If they want to do business with Europeans, they will need to be regulated in one of the EU countries that have signed on to the legislation,” Rolle said.

“But there remain those outside of those major jurisdictions, especially in … huge markets … like Latin America, or parts of Asia … where they is a gap in legislation, and certainly a gap in aligning structures around what’s going on in the big jurisdictions.

“I think that’s where the Bahamas comes in. We can be a sort of ‘rest-of-the world regulatory strategy’ … but aligned with regulation in those major jurisdictions … for persons who may have, say, for example, a license in the US to do business with US persons, but they also want to operate elsewhere.”