ASIC has commenced civil penalty proceedings in the Federal Court against Finder Wallet Pty Ltd, a subsidiary of comparison website Finder.com, for allegedly providing unlicensed financial services, breaching product disclosure requirements and failing to comply with design and distribution obligations (DDO) in relation to its crypto-asset related product Finder Earn.
ASIC Deputy Chair Sarah Court said, ‘This is ASIC’s third recent action against a firm offering a crypto-asset related product that we consider to be a financial product. Our message to industry is clear - just because an offer involves a crypto-asset related product does not guarantee it will fall outside the current regulatory regime.’
Finder Wallet offered Finder Earn between late February and 10 November 2022. Finder Earn customers deposited Australian dollars into their accounts, which were then converted to an Australian dollar-denominated ‘stablecoin’ called TAUD and allocated to Finder Wallet to use for its own working capital. Finder Wallet paid customers (in Australian dollars) an annual compounding return of either 4.01% or, in some circumstances, 6.01%, in exchange for the use of their funds by Finder Wallet.
ASIC alleges that the Finder Earn product was, in substance, a debenture. This is because customers deposited money with Finder Wallet on the understanding that their money would ultimately be repaid, together with a return for allowing Finder Wallet to use their capital.
ASIC also alleges that Finder Wallet required an Australian financial services licence to offer Finder Earn, because it was providing financial product advice or dealing in a financial product. ASIC alleges that offering Finder Earn without a licence exposed consumers to potential harm, including the possibility that they were offered a product that was not suitable for them.
Deputy Chair Court said that because Finder Earn appeared to be a financial product, Finder Wallet had a requirement to comply with disclosure and DDO obligations to protect consumers. 'Issuers of financial products such as debentures must issue appropriate risk disclosure documents and develop appropriate target market determinations to ensure that consumers are not sold inappropriate products. We allege that Finder Wallet failed to do this, potentially putting their customers at risk of harm,' concluded Ms Court.
After ASIC notified Finder Wallet of its concerns, Finder Wallet ceased offering Finder Earn from 24 November 2022 and all funds were returned in full to customers.
ASIC is seeking declarations and pecuniary penalties from the Court.
The date for the first case management hearing is yet to be scheduled by the Court.
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Background
Finder Wallet is an AUSTRAC-registered Digital Currency Exchange.
Entities providing services in relation to crypto-related products should be aware that such products may be financial products. ASIC Information Sheet 225: Crypto Assets provides guidance on the circumstances in which a crypto-related offering may be a financial product.
A range of Australian laws apply to entities giving advice, dealing, providing insurance, or providing other intermediary services for crypto-assets that are financial products. These include the requirement to hold an AFS licence or appropriate authorisation by an AFS licence holder.
ASIC has also taken other recent action to protect investors from harms posed by crypto-asset offerings.
On 23 November 2022, ASIC commenced civil penalty proceedings against fintech company Block Earner, alleging it provided unlicensed financial services and operated an unregistered managed investment scheme by offering crypto-asset related yield earning products (22-324MR).
On 25 October 2022, ASIC commenced civil penalty proceedings against BPS Financial Pty Ltd regarding allegedly misleading statements made in relation to its crypto-asset Qoin (22-287MR).
On 17 October 2022, ASIC placed interim stop orders preventing Holon Investments Australia Limited from offering or distributing three funds to retail investors because of non-compliant target market determinations. Each of the funds had invested in a highly volatile crypto-asset, and ASIC was concerned that Holon had not appropriately considered the features and risks of the Funds in determining their target markets. Holon has now commenced winding up the funds (22-278MR).
ASIC’s Moneysmart website has information for consumers about the risks of investing in crypto-assets.
Editor's note:
On 4 October 2023, the matter was listed for liability hearing. Judgment has been reserved.