Key Takeaways
- The ruling found Block Earner’s Earner product to be a managed investment scheme, thereby requiring licensing and registration under the law.
- Block Earner had contended that it operated as a “digital currency exchange” and was subject only to the light-touch AUSTRAC registration process
Block Earner, a startup in the fintech space, found itself entangled in legal proceedings after offering consumers its Earner product from March 2022 to November 2022, promising fixed yield returns from various crypto-assets.
However, a recent ruling by the Federal Court has cast a shadow over the company’s operations, as it was found to have engaged in unlicensed financial services conduct and operated an unregistered managed investment scheme through its Earner product.
The court’s decision marks one of the earliest interpretations of financial services law concerning crypto-backed products. The ruling found Block Earner’s Earner product to be a managed investment scheme and a facility for making a financial investment, thereby requiring licensing and registration under the law. This comes as a significant blow to the startup, which had positioned itself as a player in the burgeoning crypto market.
Block Earner had contended that it operated as a “digital currency exchange” and was subject only to the light-touch AUSTRAC registration process, bypassing oversight from the Australian Securities and Investment Commission (ASIC). However, the court sided with ASIC’s arguments, affirming that Block Earner’s fixed-rate products constituted financial products necessitating licensing due to their involvement in facilitating financial investments and managing investment schemes.
While ASIC’s case primarily targeted Block Earner’s Earner product, it did not extend to the company’s “DeFi Access” offering. Unlike the Earner product, which offered fixed yields, the DeFi Access product connected customers directly with protocols offering variable yields. The Court dismissed ASIC’s claim that the DeFi Access product was also a managed investment scheme, allowing it to continue operating in the market.
Reacting to the ruling, ASIC Deputy Chair Sarah Court underscored the importance of consumer protection in the crypto space. She emphasized the inherent risks associated with crypto-assets and urged firms offering crypto-backed products to carefully consider their regulatory obligations to ensure appropriate protections for consumers.
ASIC will now seek pecuniary penalties against Block Earner, with further proceedings scheduled for March 1, 2024. In a related matter, Finder.com is also facing legal action from ASIC over its Finder Earn product. ASIC alleges that Finder.com provided unlawful financial advice and operated without proper licensing, putting customers at risk.
