Federal Court makes ruling in ASIC crypto asset case
The Federal Court has made one of its first decisions on the application of financial services law regarding crypto assets for fintech company Block Earner.
It found Block Earner, described as a digital currency exchange, engaged in unlicensed financial services conduct and operated an unregistered managed investment scheme when offering its crypto-backed product called Earner.
Between March and November 2022, Block Earner offered the Earner product to consumers which allowed them to earn fixed yield returns from different crypto assets. The court found the product met the definition of a managed investment scheme and a facility for making a financial investment under the law.
However, ASIC was unsuccessful in its allegation that Block Earner’s variable yield crypto asset based offering – known as the Access Product – was a financial product. It was marketed as giving consumers access to decentralised finance lending, which ASIC considered to be a financial product, but the court disagreed.
Block Earner is the trading name of Web3 Ventures Pty and does not hold an Australian financial services licence (AFSL).
ASIC deputy chair, Sarah Court, said: “This important decision provides some clarity as to when crypto-backed products should be considered financial products which require licencing under the law. Crypto assets are risky, inherently volatile and complex.
“ASIC remains concerned that consumers do not fully appreciate the risks associated with products involving crypto assets and today’s decision is an important step forward to ensuring there are appropriate protections for consumers.
“Firms offering products with crypto assets must carefully consider whether their offerings are financial products under the existing regime. And, if they are, ensure that they are appropriately licensed and authorised before distributing them.”
ASIC said it will now seek orders from the court imposing pecuniary penalties, and a case management hearing is due to take place on 1 March 2024.