Introduction

The case Australian Securities and Investments Commission (ASIC) v. BPS Financial Pty Ltd [2024] FCA 457 marks a significant legal precedent in the regulation of cryptocurrency-related financial services in Australia. The Federal Court of Australia ruled that BPS Financial Pty Ltd engaged in unlicensed financial services and made misleading representations regarding its cryptocurrency project, Qoin. This case underscores the increasing regulatory scrutiny on digital assets and highlights the necessity for compliance with financial services laws. The ruling also serves as a warning for businesses regarding misleading and deceptive conduct under Australian consumer and financial laws.

Background of the Case

BPS Financial Pty Ltd developed and promoted Qoin, a cryptocurrency token integrated within the Qoin Wallet, which was marketed as a non-cash payment facility. The company claimed that Qoin could be used by merchants and consumers for transactions, positioning it as an alternative digital payment system.

ASIC initiated proceedings against BPS Financial in 2022, arguing that:

• BPS provided financial services without an Australian Financial Services Licence (AFSL), in breach of the Corporations Act 2001 (Cth).
• The company misled consumers and investors about the usability, acceptance, and regulatory approval of Qoin.

Legal Issues

The Federal Court examined two primary legal concerns:

1. Was BPS Financial required to hold an AFSL while offering Qoin and the Qoin Wallet?
2. Did BPS Financial make false or misleading representations about Qoin’s usability and regulatory status?

Federal Court Ruling

1. Unlicensed Financial Services

The court found that BPS had operated without an AFSL, except during a ten-month period when it was an authorised representative of PNI Financial Services Pty Ltd (PNI), an AFSL holder. The ruling clarified that:

• Qoin and the Qoin Wallet constituted a financial product as a non-cash payment facility.
• Offering such a facility required an AFSL, which BPS did not have for most of its operations.
• The authorisation by PNI did not cover the entire period of BPS’s financial service activities, meaning BPS was in breach for the remainder of the time.

2. Misleading and Deceptive Conduct

The court also ruled that BPS misrepresented Qoin’s usability and regulatory status, particularly by:

• Claiming Qoin was widely accepted by merchants, when in reality, the number of merchants was decreasing.
• Falsely stating that Qoin and the Qoin Wallet were registered and approved, when no such regulatory approvals existed.
• Suggesting that Qoin tokens could be exchanged for other currencies on independent exchanges, despite clear restrictions limiting liquidity and tradeability.

The ruling reinforced the broad application of misleading and deceptive conduct provisions under the Australian Securities and Investments Commission Act 2001 (Cth), showing that financial service providers—particularly in the cryptocurrency sector—must ensure absolute accuracy in their claims. The court emphasized that intent is not required to establish a breach; rather, the test is whether a reasonable person would be misled by the representation.

Lessons for Financial Services and Cryptocurrency Businesses

1. Strict Licensing Compliance

Companies engaging in financial services—even in emerging areas such as digital assets—must carefully assess whether their activities require an AFSL or proper authorisation from a licensed entity. Simply being an authorised representative may not provide full protection if the scope of services extends beyond the principal licensee’s authorisation.

2. Transparency in Marketing and Consumer Communication

The case highlights that misleading or deceptive conduct can arise even if a company does not intend to mislead. Businesses must ensure that:

• All representations about usability, exchangeability, and merchant acceptance are accurate.
• Legal and regulatory approvals are not implied unless explicitly obtained.
• Consumers are not given false assurances about liquidity or financial backing.

3. Consequences of Regulatory Non-Compliance

The ruling underscores ASIC’s increasing focus on crypto-related financial products and services. Companies operating in this space must:

• Ensure they meet all financial service licensing requirements.
• Engage legal and compliance teams to review marketing materials.
• Implement clear risk disclosures for customers and investors.

The Next Step: ASIC’s Appeal

Although ASIC secured a favorable ruling, it has since appealed certain aspects of the decision. ASIC is particularly challenging the interpretation that BPS was exempt from AFSL requirements while operating as an authorised representative of PNI. If the appeal is successful, it could narrow the exemptions available for crypto businesses and tighten regulations on authorised representatives in financial services.

Conclusion

The ASIC v. BPS Financial Pty Ltd ruling reinforces the importance of compliance with financial regulations in the cryptocurrency sector. As regulatory frameworks tighten, businesses involved in digital assets must ensure they meet licensing requirements and avoid misleading claims about usability and exchangeability. The ruling also serves as a broader lesson on misleading and deceptive conduct laws, reminding financial services providers of the legal obligations to maintain transparent, accurate, and non-misleading communication with consumers. With ASIC’s appeal still pending, this case may continue to shape the future of cryptocurrency regulation in Australia

Case: Australian Securities and Investments Commission (ASIC) v. BPS Financial Pty Ltd [2024] FCA 457 (ASIC v BPS Financial Pty Ltd [2024] FCA 457)

Notice of Appeal (IN THE FEDERAL COURT OF AUSTRALIA)