Finder Wallet has a big win against ASIC as regulator tests the waters on crypto products

The court has rejected the primary allegation by the Australian Securities and Investments Commission (ASIC) that Finder Earn was technically a debenture, and therefore subject to the company requiring a financial services licence to administer the product.

The ruling is considered a landmark for the industry and Finder.com founders Fred Schebesta, Frank Restuccia and Jeremy Cabral.

It is in stark contrast to a win by ASIC last month against fintech company Block Earner when the Federal Court found that Block had engaged in unlicensed financial services conduct when offering its crypto-backed Earner product.

Block Earner offered consumers between March and November 2022 a product that earned fixed-yield returns from different crypto-assets.

Heralded as one of the first decisions on the application of the financial services law to crypto-backed products, the Federal Court backed ASIC’s argument that Block Earner’s product met the definition of a managed investment scheme and a facility for making a financial investment under the law.

However, in the latest action against crypto investments, the Federal Court ruled against ASIC’s allegations that Finder Earn constituted a debenture which is technically a debt created and acknowledged by a company.

Finder Wallet, a digital currency exchange provider through which customers can buy and sell cryptocurrency assets, discontinued offering Finder Wallet to its customers in November 2022.

Finder Earn allowed Finder Wallet users to transfer and convert the Australian dollars held in their account into a cryptocurrency called TrueAUD.

The product paid customers an annual compounding return of either 4.01 per cent or, in some circumstances, 6.01 per cent, in exchange for the use of their funds by Finder Wallet. The payments were ultimately made in Australian dollars to consumers.

TrueAUD was described on the website as a “stablecoin”, “pegged” against the “currency or asset which it aims to reflect, digitised in the blockchain ecosystem” – which in this case was the Australian dollar.

Consumers were told that cryptocurrency had “a high level of risk” and that it was a “volatile asset”, but that stablecoins were “generally less volatile” than other categories of cryptocurrency.

Fin arguing against ASIC’s assertion that Finder Earn constituted a debenture, Finder Wallet said that it was “inconsistent with the well-settled principles underpinning the concept of a debenture to conflate money transferred into a Finder Wallet account with the ‘deposit’ of that money into a separate financial product”.

“If it were otherwise, the corollary would be that any transfer of money into an account comprises a debenture,” it submitted to the court.

Instead, it described the transfer as a “purchase by the customer of an investment which is recoverable as a contractual right to a return, not as a right to repayment of a loan as a debt”.

The Federal Court dismissed ASIC’s case and awarded costs to Finder Wallet on the basis that the corporate watchdog’s case assumed that Finder Earn constituted a debenture.

“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,” says ASIC’s executive director of enforcement and compliance Tim Mullaly.

ASIC, which has 28 days to appeal the decision, says it will consider the judgment carefully.