The Federal Court has found fintech company Block Earner engaged in unlicensed financial services conduct when offering its crypto-backed Earner product.
From March 2022 to November 2022, Block Earner offered consumers the Earner product which allowed them to earn fixed yield returns from different crypto-assets.
In one of the first decisions on the application of the financial services law to crypto-backed products, today the Court found that Block Earner provided unlicenced financial services and operated an unregistered managed investment scheme when offering Earner. This is because the Earner product met the definition of a managed investment scheme and a facility for making a financial investment under the law.
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 licenced and authorised before distributing them.’
ASIC was unsuccessful in its allegation that Block Earner's variable yield crypto-asset based offering, known in ASIC’s proceedings as the Access Product, was a financial product. Block Earner markets this product as giving consumers access to decentralised finance (DeFi) lending protocols. ASIC considered this to be a financial product as it had the characteristics of a managed investment scheme, investment facility or derivative. The Court did not accept this characterisation.
ASIC will now seek orders from the Court imposing pecuniary penalties. The proceedings have been listed for a case management hearing at 9.30 am on 1 March 2024.
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Background
Block Earner is the trading name of Web3 Ventures Pty Ltd. It does not hold an Australian financial services licence. It is an AUSTRAC-registered digital currency exchange.
Block Earner has been an authorised representative of Flash Partners Pty Ltd since 1 August 2022. This authorisation does not relate to the Earner or Access Products.
ASIC has taken other enforcement action to protect consumers from harms posed by crypto-asset offerings.
On 25 October 2022, ASIC commenced civil penalty proceedings against BPS Financial Pty Ltd over alleged unlicensed conduct and misleading statements in relation to its offering tied to the crypto-asset, Qoin (22-287MR).
On 15 December 2022, ASIC commenced civil penalty proceedings against Finder Wallet Pty Ltd for allegedly providing unlicensed financial services, breaching product disclosure requirements and failing to comply with design and distribution obligations in relation to its crypto-asset related product, Finder Earn (22-359MR).
On 21 September 2023, ASIC sued Bit Trade Pty Ltd, provider of the Kraken crypto exchange to Australian consumers, for allegedly failing to comply with the design and distribution obligations for the margin trading product it offers on the Kraken exchange (23-256MR).
ASIC’s Moneysmart website has information for consumers about the risks of investing in crypto-assets.
Editor's Note:
The matter has been listed for hearing on 15 May 2024 on the questions of relief from liability, penalty and costs.