The ASIC (Australian Securities and Investments Commission) and Block Earner federal court decision revolves around the regulation of digital assets and the responsibilities of platforms facilitating crypto related products. Block Earner, a prominent cryptocurrency exchange, found itself under ASIC’s scrutiny for allegedly operating without the necessary licenses in respect of its ‘Access’ service and ‘Earner’ service.
Access Service
The Access service was essentially a service in which Block Earner customers could lend their funds to other crypto DeFi companies in which the lender would be compensated accordingly for lending that crypto. Block Earner was mainly an intermediary for this service.
Earner Service
The Earner service had a similar function with the main difference being, the customer would lend their crypto to Block Earner who would pay interest to those lenders. Block Earner would subsequently lend those lender’s funds out to “trusted partners” who pay a higher interest rate to Block Earner than Block Earner was paying to the initial lenders.
The case focused on whether the Access service or Earner service was an unregistered management investment scheme and therefore needed a licence to operate.
For clarity, under section 9 of the Corporation Act 2001 (Cth) a managed investment scheme is (general speaking) a scheme where: people contribute money to acquire rights to benefits produced by the scheme, those contributions are pooled and used all together to produce that benefit and the contributors have no day-to-day control over the operation of the scheme.
The case ultimately held that the Earner service was a managed investment scheme whilst the Access service was not.
The key difference being that the Access service was merely a middle-man service between consumers and other third parties whilst the Earner product was a facility in which Block Earner would pool the contributors’ funds together for the benefit of paying interest to each of the contributors.
The case provided a very narrow decision which does not have a significant consequence to the regulatory framework of crypto across Australia. However, it is important to note that this case did exemplify that these products are complicated, and the application of contemporary laws is complicated and at times ambiguous. This is largely because the current laws in place did not contemplate decentralised finance and the function of crypto.
ASIC responded to the case where its chair Sarah Court stated:
“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.”
In considering both the narrow interpretation of the Block Earner case and ASIC’s response to the case, it would indicate that Australia’s judicial and executive stance on crypto is quite conservative. This would indicate to Australian based crypto businesses to take a conservative approach with compliance as this could be the difference between a lengthy and expensive lawsuit or a smooth operation of business.
Furthermore, it also strengthens the call for greater regulatory clarity for the industry which can be done by enactment of legislation.
