On 4 June 2024, the latest chapter in ASIC's crypto-asset enforcement efforts unfolded with the Federal Court relieving Block Earner from liability to pay penalties in connection with providing unlicensed financial services (ASIC's media release can be found here).
The Court had previously found that Block Earner was operating a managed investment scheme and should have had an Australian Financial Services Licence. However, the Court has now concluded that, despite this, Block Earner was acting honestly, had sought legal advice, actively engaged with regulators, and always intended to comply with the law. On this basis, the court chose to exercise its discretion to excuse Block Earner from a penalty.
Original Block Earner decision
Earlier this year, the Federal Court found Block Earner's product known as "Earner" was a managed investment scheme and investment facility (ASIC's media release can be found here).
The "Earner" product facilitated pooling of crypto-assets for lending.
The Federal Court found that Block Earner's other product, "Access", was not a managed investment scheme, contrary to ASIC's arguments.
Other recent enforcement activity
ASIC v Finder
On 14 March 2024, the Federal Court dismissed ASIC's claim against Finder Wallet (operators of Finder.com) regarding its product "Finder Earn" (ASIC's media release can be found here).
ASIC had argued that Finder Earn was a "debenture", consequently claiming that Finder Wallet should have held an Australian Financial Services Licence.
The Finder Earn service permitted customers to deposit money with Finder Wallet, or lend it to Finder Wallet, and exchanged for a stablecoin known as TrueAUD. Finder Wallet would pay Customers a return for any funds borrowed.
The Federal Court concluded that this was not a debenture. There does not, however, appear to have been a detailed consideration of whether Finder Earn might have been a managed investment scheme, investment facility or other type of financial product.
On 10 April 2024, ASIC appealed the Federal Court's decision on the basis that the primary judge erred in holding Finder Earn was not a debenture (ASIC's media release can be found here). We will be following this judicial development closely and provide updates in due course.
These judgments provide important insights into how ASIC and the Courts will apply the existing financial services regulatory framework to crypto-assets. The Australian Government are developing a tailored legislative framework for crypto-assets, but it has not yet been implemented. Even once it is, aspect of the existing financial services licensing regime may still be relevant.
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