ASIC v Finder Wallet Pty Ltd: ASIC continues to test regulatory boundaries relating to digital asset based products

What you need to know

The Federal Court has dismissed ASIC's landmark case against Finder Wallet (The Australian Securities and Investments Commission (ASIC) v Finder Wallet Pty Ltd (Finder Wallet)).

The case concerned Finder Earn, a product offered by Finder Wallet, that allowed consumers to purchase "TrueAUD" stablecoins (TAUD) using Australian Dollars (AUD) and be paid a fixed return for giving Finder Wallet use of the TAUD for a period (called the 'Earn Term').

ASIC alleged that Finder Earn was a debenture, and therefore a financial product, and that as a result, Finder Wallet contravened the Corporations Act by, amongst other things, not holding an Australian Financial Services Licence (AFSL), not lodging disclosure documents with ASIC and not complying with Design and Distribution obligations the Corporations Act 2001 (Cth) (Corporations Act).

The Court found that the Finder Earn product was not a debenture under the Corporations Act, and therefore not a financial product as alleged by ASIC.

This judgment is another example of ASIC testing the regulatory perimeter of financial services laws and their application to digital asset based products. It also shows that digital assets based products can be offered without financial services laws applying to them, provided they are carefully considered and designed.

Why was Finder Earn not a financial product?

Section 9 of the Corporations Act defines a debenture as a chose in action that includes an undertaking by the body to repay as a debt money deposited with or lent to the body.

In this case, the court considered the following three questions in relation to Finder Earn:

1  Was there a chose in action?

The court found that a customer who acquired the Finder Earn product had a chose in action because, upon acquiring or investing in the Finder Earn product, the customer had a contractual right at the end of the Earn Term as against Finder Wallet to be paid an amount of TAUD equivalent to the customer's allocation and return, which could be enforced.

2   Was there money deposited or loaned to Finder Wallet?

The court found that the customer was not making a loan or depositing money to Finder Wallet. The customer simply purchased TAUD, which could not be characterised as a deposit of moneys or a loan to Finder Wallet. It was found that this was a payment by the customer of AUD held in their Finder Wallet account in exchange for TAUD. It was then this TAUD that was transferred or loaned to Finder Wallet by the customer to use as it saw fit.

3  Did the chose in action include an undertaking by Finder Wallet to repay moneys "deposited or lent" as a debt?

The court found that there were no moneys deposited or lent in this case, and neither was there an undertaking by Finder Wallet to repay any moneys as a debt. Rather, the court found there was a contractual promise which required Finder Wallet to return to the customer the TAUD allocated by the customer to Finder Wallet together with the return earned on that allocation over the Earn Term.

The court considered that the definition of debenture imported a notion of an undertaking to pay a debt comprising a loan made to the company as part of its working capital and found that even if there was a deposit or loan of money, it was difficult to see how it was made to Finder Wallet as part of its working capital.

What you need to do

This judgment is another example of ASIC testing the regulatory perimeter of financial services laws and their application to digital asset based products. It also shows that digital assets based products can be offered without financial services laws applying to them, provided they are carefully considered and designed.

Australian Securities and Investments Commission v Finder Wallet Pty Ltd [2024] FCA 228

Authors: Narelle Smythe, Partner; and Ankita Rao, Lawyer.