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The fall of the crypto firm FTX, based in The Bahamas, will again turn the searing spotlight of probity on Caribbean financial institutions that have a reputation for laxity when it comes to regulations, corporate governance and due diligence.

Already correspondent banking has seen the reputable banking houses of the world reticent in having to engage with Caribbean institutions for fear of being punished by vigilant regulators.

Crypto was supposed to supplant the existing financial system and was hailed as a money maker that would make the world’s leading bourses decrepit and obsolete. The blockchain was here to break the wheel and it would not take 20 years to do so. It would be as transformative as the internet -instantaneously.

A lot of young people, a few years out of college with no work experience worth talking about, let alone life experience, were to be the new masters of the universe.

Cryptocurrencies were going to redefine the world and there would be little need for stodgy regulations and corporate governance rules. Hoodies would be the new corporate suits.

This week we heard how FTX, headed by 30-year-old Sam Bankman-Fried (SBF), crumbled like a cookie with more than one million users of the platform losing their money and over 100,000 creditors owed money.

In July of this year, FTX had more than one million users and traded around $10 billion a day.

SBF’s net worth was placed at $23 billion. Incredible! But how did this come to be?

A young graduate works as a broker on Wall Street in 2017 then goes on to form FTX in 2019 which in a few short years is valued at $32 billion. The guy must be a guru with some unusual insight.

After some questions are asked, he moves the company to the Caribbean, where there are less intrusive eyes and overzealous regulators poking their noses in. He opts for The Bahamas where he says, “it is one of the few countries that has a comprehensive licensing regime for cryptocurrencies and cryptocurrency exchanges”.

The Caribbean has a reputation for lax regulations and an anything-goes-approach. The fall of FTX and the fact that SBF didn’t have a clue what he was doing (the company was mismanaged with no substantive auditing or record keeping), means that the region will again come under severe scrutiny.

In Jamaica, there was the David Smith and Cash Plus debacle and today you have scammers and cybercrimes out of control, forcing companies to spend huge sums on cybersecurity. The Panama Papers revealed that the region was a haven for stashing money away from prying eyes.

Crypto has been suggested as a way for many Caribbean countries to get out of their financial predicament but this fiasco illustrates the dangers of an unregulated asset class. Some say these countries must follow the example of El Salvador.

SBF was dismissive of regulations, saying they restrict the democratisation of the cryptocurrency movement.

He wrote: “F… regulators, they make everything worse.”

He had all the answers and was a Gen Z phenom.

Last week, seeing the writing on the wall, traders withdrew US$6 billion from FTX in just 72 hours. It then turns out that up to US$2 billion in client funds have disappeared from FTX’s books.

SBF had pledged to donate a US$1 billion to the Democratic Party to fight the midterm elections. He was also a big hit with Hollywood and was celebrated as the young man with the Midas touch.

It was a spectacular rise and an equally spectacular fall with SBF having to resign as CEO and FTX filing for Chapter 11.

John Ray III, the man brought in to sort out Enron after it hit the wall, has been brought in again to perform a rescue mission with FTX. It is instructive what he had to say and Caribbean governments and financial institutions should pay attention here.

“Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here.

“From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of controls in the hands of a very small group of inexperienced and unsophisticated and potentially compromised individuals, this situation is unprecedented.”

Caroline Ellison, part of SBF’s inner circle and CEO of FTX sister company, Alameda Research, wrote: “I didn’t get into this as a crypto true believer. It’s mostly scams and memes when you get down to it.”

Gary Gansler, chair of the Securities Exchange Commission, has a lot to answer for and should be interrogated on why he allowed a wild west approach to the crypto market. In August, a US bank regulator ordered FTX to stop false and misleading claims it had made about whether funds at its operation are insured by the Government.

After the carnage, US Treasury Secretary Janet Yellen warned against “investments like crypto which lack appropriate supervision and regulation. I think this is a space where investors and consumers should really be very careful.

“We have very strong investor and consumer protection laws for most of our financial markets but in some ways the crypto space has inadequate regulation.”

Questions must also be asked of The Bahamas and why did it give this young man a pass to do business in such a cavalier manner. He bought a 12,000-square-foot penthouse in Nassau for US$40 million from which he and his friends lived and operated.

Anthony Scaramucci’s Skybridge Capital has been hurt by its association with FTX, which acquired 30 per cent of the company. Scaramucci is now looking to reacquire the equity stake he sold.

This week he said in a Bloomberg interview: “The problem with the crypto industry is there are a lot of young people who are antagonising each other and lighting each other up on Twitter. I had an old boss at Goldman who said your job is to take your six shooters and point them at the enemy, don’t point them at each other. If the industry wants to grow up, we need a lot more collaboration,

“Our business has been hurt by the association, there’s no question about it.”

At the start of this year, a lot of the young hot shots dismissed Warren Buffett as out of touch – an old man who has had his day and failed to see the rise of the Crypto Empire.

This is what he had to say back in 2018 at the Berkshire Hathaway Investor meeting. Now think about what happened this week. Indeed, he must be a sage.

“With cryptocurrencies there’s nothing produced by way of value for me. You also have the problem that it draws in a lot of charlatans and people trying to create various exchanges. It’s something where people of less than stellar character see an opportunity to clip people who are trying to get rich because their neighbour is getting rich by this stuff which neither of them understands.

“Charlie (Charlie Munger, vice chairman of Berkshire Hathaway)?”

Munger: “Well, I like cryptocurrencies a lot less than you do. To me it’s just dementia and I think people who are rational traders that go into trading cryptocurrencies …it’s just disgusting. It’s like somebody else is trading turds and you decide I can’t be left out.”