ASIC Files Its First Crypto-Asset Lawsuit

ASIC is building its crypto-asset credentials, after taking its first legal action over a crypto offering by filing a case against BPS Financial Pty Ltd (BPS) on October 25, 2022.

ASIC alleges that BPS made false, misleading or misleading statements and engaged in unauthorized conduct in connection with a non-cash payment (PCN) installation involving a crypto-asset token, Qoin (Installing Qoin).

ASIC alleges that BPS violated ASIC law by making false or misleading statements that:

  1. consumers could be confident that they could exchange Qoin for fiat currency or other crypto-assets through independent exchanges;
  2. consumers could use Qoin to buy goods and services from a growing number of merchants;
  3. the digital wallet associated with the Qoin Facility was a regulated, registered and approved product in Australia; and
  4. the Qoin facility and BPS were fully compliant with Australian financial services laws.

ASIC also alleges that by offering the Qoin facility, BPS engaged in unauthorized conduct.

What’s next for cryptocurrency regulation in Australia?

The regulation of crypto-assets and decentralized finance (Challenge) is a key part of the ASIC Corporate Plan 2022-26 and ASIC has said it is willing to take enforcement action to protect consumers from harm associated with crypto-assets under ASIC’s jurisdiction. In a recent Press releaseASIC describes crypto-assets as “highly volatile, inherently risky and complex‘ and in its business plan, indicates that it intends to raise awareness of the risks inherent in crypto-assets and DeFi.

ASIC has publicly stated on several occasions that it is particularly concerned about the potential risks cryptoassets pose to vulnerable consumers. ASIC is concerned with crypto-assets that ‘imitate‘ traditional products, but which seek, according to them, to circumvent the regulations.

The BPS proceeding is the first of what will likely be many actions taken by ASIC as part of its increased focus on crypto-assets and its stated goal of protecting consumers.

Although no court date has been set, BPS said it will defend the claim. In this regard, ASIC’s arguments regarding whether the combination of tokens, a digital wallet on blockchain, and the corresponding movement of crypto-assets between wallets on and off a platform constitute an NCP facility will be of particular interest. The outcome of these arguments could have broad implications for the industry. It is not yet clear whether ASIC will be required to argue that certain crypto-assets themselves are financial products, but that too would be important in the context of the federal government’s agreement. proposed token mapping exercise.

Quel que soit le résultat, la procédure BPS[estunmessageclairàl’industriequel’ASICsurveilledeprèsenquêteetprenddesmesuresencequiconcernelesdivulgationsparlesparticipantsaumarchéetlesparticipantsdevraientexaminerlescaractéristiquesgénéralesdesaccordsbaséssurlescrypto-actifsoulesservicesadjacentsauxcrypto-actifsparrapportaucadreréglementaireexistantdesservicesfinanciers[isaclearmessagetotheindustrythatASICiscloselymonitoringinvestigatingandtakingactioninrelationtothedisclosuresbyparticipantsinthemarketandparticipantsshouldconsidertheoverallfeaturesofcrypto-assetbasedarrangementsorcrypto-assetadjacentservicesagainsttheexistingfinancialservicesregulatoryframework[estunmessageclairàl’industriequel’ASICsurveilledeprèsenquêteetprenddesmesuresencequiconcernelesdivulgationsparlesparticipantsaumarchéetlesparticipantsdevraientexaminerlescaractéristiquesgénéralesdesaccordsbaséssurlescrypto-actifsoulesservicesadjacentsauxcrypto-actifsparrapportaucadreréglementaireexistantdesservicesfinanciers[isaclearmessagetotheindustrythatASICiscloselymonitoringinvestigatingandtakingactioninrelationtothedisclosuresbyparticipantsinthemarketandparticipantsshouldconsidertheoverallfeaturesofcrypto-assetbasedarrangementsorcrypto-assetadjacentservicesagainsttheexistingfinancialservicesregulatoryframework

What should other providers do?

Given that ASIC considers crypto-assets to be inherently risky and its business plan focuses on enforcement in this sector, it is likely that the regulator will be more interventionist in the way products and services are disclosed to consumers, and will endeavor to ensure that crypto-asset service providers have properly considered and disclosed the features and risks of their products to consumers. In addition to seeking advice on the regulatory status of any agreements in place, suppliers should also make it a priority to ensure that their warranties and consumer communications accurately reflect the services or products provided.

For regulated providers (e.g. fund operators investing in crypto-assets), it is clear that ASIC expects a thorough and detailed review of the characteristics and risks of any regulated product, including a review of the nature crypto-assets. For example, the speculative and risky nature of crypto-assets may mean that regulated products are not suitable for a broad target market as the value of such an investment may drop to zero.

Suppliers should be aware that there are significant penalties for unauthorized conduct and/or misleading and deceptive conduct. In addition to financial penalties, suppliers may also be subject to prohibition orders, damage to their reputation and customers exercising withdrawal rights under the Companies Act 2001 (Cth).

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