Australian Court Defines Licensing Requirements for Crypto-Yield Products
Summary:
The Federal Court of Australia has determined that cryptocurrency products promising managed yields require a financial services license, while "pass-through" offerings do not. This ruling follows a case lodged by ASIC against fintech firm Block Earner, penalized for offering its "Earner" product in 2022 without necessary licenses. The company's Access product, however, was not subject to the same regulations. The court decision could set a significant precedent for how Australian regulators approach crypto-yield products.
The Federal Court of Australia has made key distinctions in the crypto-yield market. It declared that crypto products promising managed yields need a financial services license. Yet, "pass-through" products escape this requirement. Block Earner, a fintech firm, faced financial penalties for offering their "Earner" product last year without the required Australian Financial Services License. This product offered yields on loans in various cryptocurrencies, including USDC, Bitcoin, Ether, and PAX Gold. Judge Darren Jackson, however, clarified that Block Earner's second product, Access, didn't operate with a managed investment scheme, and so didn't need a license.
The lawsuit was launched by the Australian Securities and Investment Commission (ASIC), which accused both Block Earner's products of breaching corporate laws. These rulings could set a precedent for Australian regulators' treatment of crypto-yield products. Digital asset legal expert Michael Bacina explained that the Access product was just a gateway to decentralized finance (DeFi). Nevertheless, he emphasized the need for businesses to take care in how they market crypto products, so as to avoid misleading customers.
Block Earner discontinued the Earner product before the trial commenced and stated that the court's conclusions wouldn't impact its current products. If the Treasury's proposed regulations pass, Dr. Aaron Lane of RMIT's Blockchain Innovation Hub suggests it would likely bring licensing conditions to firms like Block Earner.
In the next phase, ASIC will request the Court to levy financial penalties on Block Earner. The case will proceed to a case management hearing scheduled for March 1, 2024. ASIC commended the court ruling, calling it a necessary measure for consumer protection in the digital asset space. It urged firms with crypto offerings to determine whether their products fit under the legal category of financial products, and if so, to acquire necessary licenses. The regulator insisted on the importance of maintaining robust consumer protections around cryptocurrency-related offerings.
Published At
2/9/2024 8:33:28 AM
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