The Federal Court has found BPS Financial Pty Ltd (BPS) engaged in unlicensed conduct when offering the ‘Qoin Wallet’, a non-cash payment facility which used a crypto-asset token called ‘Qoin.’
In delivering judgment for proceedings brought by ASIC, Justice Downes found that BPS, since January 2020 - and save for a 10-month period - contravened the Corporations Act as it did not hold an Australian Financial Services Licence, nor was authorised by a licence holder, to issue or provide financial advice about the Qoin Wallet.
Justice Downes also found BPS engaged in misleading or deceptive conduct and made false or misleading representations concerning the Qoin Wallet, including that:
- the Qoin Wallet was officially registered or officially approved when it was not,
- the Qoin Wallet could be used to purchase goods and services from an increasing number of Qoin merchants, when in fact it was declining, and
- consumers who purchased Qoin tokens could be confident that they would be able to exchange them for other crypto-assets, or currency such as Australian dollars, through independent exchanges.
The Court found the only digital currency exchange that accepted Qoin prior to November 2021 was BTX Exchange, which was not independent of BPS and did not permit crypto assets to be exchanged with each other.
ASIC Chair Joe Longo said this was a significant ruling as the first court outcome against a non-cash payment facility involving crypto.
‘ASIC has taken a number of enforcement actions against crypto asset businesses with the intention of clarifying what is a regulated product and when the provider needs a licence,’ Mr Longo said.
‘Crypto assets are highly volatile, inherently risky, and complex. This makes it critically important that providers have the appropriate licences and authorisations, and that investors are provided with clear and accurate information. This case is an important reminder that many crypto products are financial products and that providers need to hold a licence.
‘These proceedings should send a message to the crypto industry that their products will continue to be scrutinised by ASIC to ensure consumers are protected and that they comply with regulatory obligations. Entities should not be making claims about features, or the regulatory status of their offerings, that are false or misleading.'
The Court has directed the parties to confer with respect to directions that may be made for further hearing to determine the remaining questions in the proceeding, including penalties, on a date to be fixed later in 2024.
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Background
BPS promoted Qoin tokens to retail consumers and business owners (termed ‘Qoin Merchants’) as a means of making payment for goods and services offered by Qoin Merchants. Up to 30 September 2022 the Qoin Wallet was issued more than 93,000 times and BPS received in excess of $40 million from the sale of Qoin Tokens. Justice Downes found that the Qoin Wallet was a financial product (specifically, a non-cash payment facility).
Entities providing services in relation to crypto-asset-related products should be aware that many such products are financial products such as non-cash payment facilities, securities or managed investment schemes. ASIC Information Sheet 225: Crypto Assets provides guidance on the circumstances in which a crypto-asset-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’s Moneysmart website has information for consumers about the risks of investing in crypto-assets.
Editor’s Note 1:
On 22 May 2024, her Honour Justice Downes made declarations and orders giving effect to her reasons for judgment.
Editor’s Note 2:
On 18 June 2024, ASIC appealed part of the judgment in this matter on grounds including that:
- Her Honour erred in holding that BPS was exempt under s 911A(2)(a) of the Corporations Act from the requirement to hold an Australian Financial Services Licence (AFSL) because it had an Authorised Representative Agreement with PNI Financial Services Pty Ltd; and
- Her Honour erred in holding that an authorisation, for the purposes of s 916A, can authorise a person (in this instance BPS) to issue, on behalf of an AFSL holder, a financial product of which the AFSL holder is not the issuer.
ASIC has appealed this decision with the intention of clarifying when a provider of a financial product who is an Authorised Representative of an Australian Financial Services Licensee is exempt from the requirement to hold an AFSL.
In delivering her reasons for judgment on 3 May 2024, Justice Downes also found that BPS engaged in misleading or deceptive conduct and made false or misleading representations concerning the Qoin Wallet in relation to three separate representations, but found against ASIC in relation to a fourth representation as alleged by ASIC. ASIC is not appealing from her Honour’s rejection of that aspect of ASIC’s case.