ASIC loses key crypto case in court

Australia’s corporate regulator has lost one of its key court cases targeting the regulation of cryptocurrencies.

ASIC deputy chair Sarah Court during the ASIC annual forum at the Sofitel in Melbourne. Aaron Francis / The Australian

Cryptocurrency exchange Finder Wallet did not breach Australian laws by providing “unlicensed” financial services products, according to the Federal Court.

It means the Australian Securities and Investments Commission has lost a key court case targeting the regulation of cryptocurrencies.

ASIC claimed Finder Wallet’s “Earn” product was a debenture, because customers deposited money with Finder Wallet on the understanding it would be repaid.

Finder Wallet should have had an Australian financial services licence to offer Finder Earn, because it was providing financial product advice or dealing in a financial product, the corporate watchdog argued.

ASIC alleged the Earn product, which was offered by Finder Wallet between February and November 2022, exposed customers to potential harm because it did not have a financial services licence.

But on Thursday, Justice Brigitte Markovic ruled the case should be dismissed.

“ASIC has not established that the Finder Earn product is a debenture,” she said.

“As each of the contraventions of the Corporations Act alleged by ASIC is predicated on establishing that the Finder Earn product is a debenture, those contraventions cannot be made out.”

ASIC deputy chair Sarah Court said in January protecting consumers from risky cryptocurrency investments continued to be a priority for the regulator. She also said ASIC would continue to “test the full boundaries” of laws to protect Australian consumers which could mean losing a few cases.

In a statement released on Thursday, ASIC said it would consider the judgement and noted it had 28 days to lodge an appeal.

“ASIC pursued this matter because we considered that this product was being offered without the appropriate licence or authorisation and therefore without the benefit of important consumer protections,” ASIC executive director Tim Mullaly said.

University of Sydney business school professor Daniel Schlagwein said the judgement meant the Finder Earn product was found to be legal, but points to “a need to revise current legislation.”

“I would say that this clearly points shortcomings of the current laws because they do not capture cases that they are supposed to capture,” Dr Schlagwein said.

He said future test cases are likely to continue probing how cryptocurrencies can be regulated, pointing out differences between the original cryptocurrency, Bitcoin, and “everything else in the crypto space”.

“In this case, you have a double problem in that the cryptocurrency is issued on the same platform on which it is traded. That reminds me a bit of FTX,” he said.

“Plus, I think the purpose of Bitcoin is to have an alternative medium of exchange... so to me ‘stablecoin’, a 1:1 match to the dollar, is a contradiction in terms; this is not a real cryptocurrency to me.”

Justice Markovic explained a customer purchased cryptocurrency called TrueAUD with Australian dollars held in his or her Finder Wallet account, in exchange for an equivalent amount of TrueAUD.

TrueAUD was marketed as “stablecoin”, “pegged” against the “currency or asset which it aims to reflect”, Justice Markovic said.

While the terms described cryptocurrency as having “a high level of risk”, stablecoins were said to be “generally less volatile” than other cryptocurrencies.

According to ASIC, Finder Earn customers deposited Australian dollars into their accounts, which were then converted to TrueAUD and allocated to Finder Wallet to use for its own working capital.

It comes after the US Securities and Investments Commission approved 11 bitcoin exchange-traded funds in January, with Australian vendors arguing it gave legitimacy to crypto as an asset class.

Finder’s global CEO and co-founder Frank Restuccia said: “We are delighted with this outcome, which confirms that Finder was compliant with our regulatory obligations in offering Finder Earn to our customers.”

Originally published as ASIC loses key crypto case in court