On 6 November 2022, CZ, the CEO of Binance, declared in a tweet that he wanted to liquidate all of his FTT (FTX Token), following the news that a large part of FTX’s reserves were stored in the form of the exchange’s own native token.
Without going into detail as to why this would constitute a serious risk of insolvency, on 11 November, after days of users trying in vain to withdraw their funds, bankruptcy was officially declared. When this happens, a bankruptcy receiver is appointed, who is in charge of settling the company’s debts by liquidating its assets in order to distribute the company‘s remaining assets among its creditors.
But let us take a step back. Why was there no intervention by a European body to protect European users?

THE CASE
A few months before the crash, FTX had opened a European subsidiary (FTX EU) to which all European users should have intuitively belonged. Despite having been notified by email of the move to FTX EU, all users registered with FTX prior to the creation of the subsidiary were then found to have remained FTX International customers, and thus could not receive protection from the EU supervisory authorities under the MiFID directive.
In this specific case, FTX EU was accredited with CySEC, the Cyprus supervisory authority; therefore, as Consob states, “on the basis of the European Union rules on investment services, it is CySEC (and not Consob) which is the competent authority to supervise the aforementioned FTX EU Ltd, also for the activity carried out in Italy (it being notified by the Cypriot authority to operate in our country exclusively under the freedom to provide services mode)”.
Notwithstanding the fact that, within the framework of the bankruptcy procedure (Chapter 11 of the U.S. Bancrupcty Code), FTX EU has started the process of restitution of funds to the clients (as of today still pending), in the event of a negative outcome, any claims would subsequently be taken care of by the Cypriot Financial Ombudsman, who would have the task of compensating the clients for the missing funds, up to a maximum limit of Euro 20,000 for retail clients for the financial instruments provided for by MiFID II.

As for the clients who remained under the wing of FTX International, the latter has also started the same process of restitution of funds as above, with the big difference that, whatever the final outcome, there would be no protection from the European Union.

CONSIDERATIONS
When trading in financial markets, including cryptocurrencies, one of the first things to consider is to assess the reliability and security of the intermediary.
The safest and most efficient way to do this is to check its presence on the list of entities authorised by Consob, or in any case, as mentioned in the previous paragraph, among those authorised by the competent authorities of the countries adhering to the European Union’s rules on investment services.
Although FTX was one of the best-known cryptocurrency exchanges in the world, it was not among the aforementioned entities, at least until the establishment of FTX EU at CySEC, that could not guarantee a sufficient level of protection for the platform’s users.
It follows that media standing and reputation should not be factors to be taken into account when choosing an intermediary to whom one’s funds should be managed.