ASIC has commenced civil penalty proceedings alleging unlicensed conduct and false, misleading or deceptive representations relating to a non-cash payment facility involving crypto-assets. The latest action follows hot on the heels of ASIC's decision last week to issue interim stop orders relating to three crypto-asset funds offered by Holon Investments.
On Tuesday, 25 October 2022, the corporate regulator announced that it had commenced proceedings in the Federal Court against Gold Coast-based BPS Financial Pty Ltd (BPS), the owner and operator of Block Trade Exchange and issuer of the Qoin digital wallet facility. ASIC alleges that Qoin’s combination of tokens, a digital wallet and a distributed ledger implemented using blockchain technology is a non-cash payment facility.
ASIC further alleges that in marketing the Qoin facility, BPS made false, misleading or deceptive representations, including that:
consumers who have purchased Qoin tokens can be confident that they will be able to exchange them for other crypto-assets or fiat currency (such as Australian dollars) through independent exchanges;
Qoin tokens can be used to purchase goods and services from an increasing number of merchants registered with BPS;
the Qoin facility and/or the Qoin wallet application used to transact Qoin tokens are regulated, registered and/or approved in Australia; and
the Qoin facility and/or BPS are compliant with financial services laws.
ASIC Deputy Chair Sarah Court said:
We allege that, despite what BPS represented in its marketing, Qoin merchant numbers have been declining, and that there have been periods of time where it was not possible to exchange Qoin tokens through independent exchanges.
ASIC is particularly concerned about the alleged misrepresentation that the Qoin Facility is regulated in Australia, as we believe the more than 79,000 individuals and entities who have been issued with the Qoin Facility may have believed that it was compliant with financial services laws, when ASIC considers it was not.
Qoin was already the subject of a class action commenced in 2021 over its decision to limit withdrawals from the Qoin facility.
ASIC's originating process does not separately allege that the Qoin token was a financial product. The allegations based on unlicensed activities and breaches of consumer protections under financial services laws hinge on ASIC's assessment of the Qoin facility as a non-cash payment facility. BPS has stated that it will be defending the matter. If the case proceeds, it is likely to be one of the first ASIC enforcement actions relating to crypto-assets to proceed to Court.