On Friday, the Full Federal Court ruled in favour of the Australian Securities and Investments Commission (ASIC) that BPS Financial could not rely on the “authorised representative” exemption under the Corporations Act when issuing the “Qoin Wallet”, a non-cash payment facility, on its own behalf.
The corporate regulator had appealed an aspect of the Federal Court’s decision delivered on 3 May 2024, which found BPS was exempt from the requirement to hold an Australian Financial Services Licence (AFSL) while it was an authorised representative of PNI Financial Services Pty Ltd (PNI) between 5 November 2020 and 30 August 2021.
“The Full Court found that BPS was acting on its own behalf when issuing the Qoin Wallet and not as a representative of PNI. Accordingly, the Full Court found that BPS was required to hold an AFS licence,” ASIC said.
“The Full Court declined to consider whether the issuer of a financial product can never act in their own capacity when they are operating as an authorised representative of an AFS licensee, or whether AFS licensees must always be involved in the issuing of relevant financial products when they are sold or promoted by its authorised representative.”
The matter will proceed to a penalty hearing; however, a date has not yet been set.
In a first-of-its-kind ruling in May 2024, the Federal Court found BPS guilty of engaging in unlicensed conduct related to its Qoin Wallet.
In delivering judgment for proceedings brought by ASIC, Justice Downes found that BPS, since January 2020 – and save for a 10-month period – contravened the Corporations Act as it did not hold an AFSL, nor was authorised by a licence holder, to issue or provide financial advice about the Qoin Wallet.
Justice Downes also found that BPS engaged in misleading or deceptive conduct, making false or misleading representations about the Qoin Wallet’s official registration, its usability for purchases from Qoin merchants, and consumers’ ability to exchange Qoin tokens for other cryptocurrency assets or currency through independent exchanges.
The court found that the only digital currency exchange that accepted Qoin prior to November 2021 was BTX Exchange, which was not independent of BPS and did not permit cryptocurrency assets to be exchanged with each other.
According to the corporate regulator, up to 30 September 2022, the Qoin Wallet was issued more than 93,000 times and BPS received in excess of $40 million from the sale of Qoin tokens.
ASIC chair Joe Longo said this was a significant ruling as the first court outcome against a non-cash payment facility involving cryptocurrency.
“ASIC has taken a number of enforcement actions against crypto asset businesses with the intention of clarifying what is a regulated product and when the provider needs a licence,” Longo said at the time, highlighting cryptocurrency assets as “highly volatile, inherently risky and complex”.
“This makes it critically important that providers have the appropriate licences and authorisations, and that investors are provided with clear and accurate information. This case is an important reminder that many crypto products are financial products and that providers need to hold a licence.”
