Funds Update - 2 May 2025

In this Funds Update for 2 May 2025:

1. Digital asset product found to not be a financial product
2. ASIC launches new AFS licensee portal
3. ASIC suspends AFS licence

Digital asset product found to not be a financial product

On 22 April 2025, the Full Federal Court found on appeal that a digital asset product was not a financial product and that the issuer did not require an Australian financial service (AFS) licence.

The Federal Court had:

• initially found that the digital asset product (which allowed customers to loan cryptocurrency and receive fixed interest rates) was an interest in a managed investment scheme (MIS) and that the issuer needed an AFS license; and
• decided not to impose a penalty on the basis that the issuer had obtained legal advice about the product, had acted honestly and, having regard to all the circumstances of the case, ought fairly to be excused for the contravention. A HSF article on this can be found here.

ASIC then appealed the Federal Court’s decision to not issue a penalty and the issuer cross-appealed (arguing that the product was not a financial product and that the issuer did not need an AFS license).

In determining that the digital asset product was not a MIS and a financial product the Full Federal Court found that:

• while customers contributed funds in exchange for fixed interest payments, they did not acquire a right to receive benefits produced by the scheme and there was no intention to pool their funds in order to produce financial benefits for them;
• the issuer exercised its own discretion in using the funds received and carried the full risk of its business decisions; and
• the customers’ right to receive fixed interest payments was based on a separate contractual obligation and was not contingent on the performance of the issuer’s business activities.

The Full Federal Court also rejected arguments that the product was a financial investment because it resembled a loan (borrowing funds with fixed interest payments) or a derivative because its value was not derived from something else.

This decision aligns with a previous case we reported on here where a digital product was determined to not be a debenture.

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ASIC launches new AFS licensee portal

ASIC has announced that on 5 May 2025 it is launching a new online portal for applications for, to vary and to cancel, AFS licences. 

The new portal aims to be more efficient and user-friendly and will not change the AFS licence eligibility criteria, or the information required to evaluate applications and will:

• pre-fill information;
• present relevant questions for each applicant; and
• collect essential information upfront.

Supporting resources will be available on ASIC’s website following the launch.

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ASIC suspends AFS licence

On 14 April 2025, ASIC suspended an AFS licence for a year because ASIC determined that the licensee was no longer carrying on a financial service business following a change in ownership of the licensee and the loss of its responsible managers and key personnel. 

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