ASIC says Block Earner needs financial services licence

The Australian Securities and Investments Commission (ASIC) has ruled that fintech company Block Earner, engaged in unlicensed financial services conduct when offering its crypto-backed ‘Earner’ product.

Block Earner is the trading name of Web3 Ventures, which ASIC said on Friday “offered consumers the Earner product which allowed them to earn fixed yield returns from different crypto-assets” between March 2022 to November 2022.

The Coinbase-backed company does not hold an Australian financial services licence according to ASIC and is an AUSTRAC-registered digital currency exchange.

“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,” ASIC said.

The decision was made 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,” Court said.

“Firms offering products with crypto-assets must carefully consider whether their offerings are financial products under the existing regime.

“If they are, ensure that they are appropriately licenced and authorised before distributing them.,” Court added.

The regulator said its 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 said.  

“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.”

The regulator said it now intends to “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.”