ASIC’S latest tilt at crypto promoters – that certainly blocked some earning!

The Block Earner case – what you need to know
  • The Federal Court of Australia confirms that crypto assets can be captured under existing financial services laws.
  • ASIC achieves mixed results in its recent tilt at regulating crypto assets, having flagged this asset class as an enforcement priority.

Why was this case important for the crypto industry?

The Block Earner case (ASIC v Web3 Ventures Pty Ltd [2024] FCA 64) might not have been a sweeping victory for ASIC. However, the Federal Court’s judgment confirms that crypto assets can be captured under existing financial services laws.

Operators in the crypto industry should take note and utilise this opportunity to review their existing (and planned) operations, including their product/service business models, to ensure compliance with the existing legislative framework.

This is likely to be only the beginning of ASIC’s crypto asset offensive.

What are the key takeaways for the crypto industry?

The accuracy and intention of representations made in your ‘Customer Terms’ and ‘FAQs’ are important. As the Block Earner case demonstrates, these documents can be used to shape your customers’ expectations for any benefits associated with your products/services.

You must ensure that disclosures or disclaimers are consistent with the intention of the relevant product/service as a business model, including any description(s) provided in your Customer Terms and/or FAQs.

If you provide your customers with a product/service which has a business model predicated on drawing together or ‘pooling’ the assets of multiple customers to achieve (or enhance) returns, then:

  • you may be operating an unregistered managed investment scheme* (and thereby offering your customers an ‘interest’ in a type of financial product*); and
  • by engaging in the scheme, your customers may be making a financial investment*.

Either way, you need to comply with the financial services regulatory regime, including holding (or being a registered authorised representative of a holder of) an Australian financial services licence (AFSL).

If you provide your customers with access to third party products/services which generate a financial return and, in doing so, exercise more control than simply acting as an intermediary, then your customers may be making a financial investment* as a result of engaging in your offering.

In Australia, it has yet to be determined whether crypto assets are a form of ‘property’. However, the Court was not required to form a view on this for the purposes of its decision. Some foreign jurisdictions (including New Zealand) have recently determined that crypto assets are a form of property, and we expect that as the products/services of more crypto operators in Australia come under the regulatory microscope, this question will soon be finally determined.

What’s next?

A further hearing will be held on 1 March 2024 to determine any pecuniary penalty.

(* As defined in the Corporations Act.)

For more information, or to discuss financial services queries in general, please contact a member of KHQ’s Corporate & Commercial or Litigation teams on +61 (0)3 9663 9877.

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