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.
