ASIC Takes Legal Action Against Finder.com Over Crypto Yield Product – What Does It Mean for Australian Crypto?

The Australian Securities and Investments Commission (ASIC) has initiated legal proceedings against Finder.com, a well-known financial product comparison website. But why? It turns out, ASIC is challenging Finder.com’s crypto yield-bearing product, ‘Finder Earn’, claiming it operated without the necessary license. This move marks the second instance of ASIC targeting a crypto yield product provider in Australia, following action against Block Earner in November. Let’s dive into what this means for Finder.com, the crypto industry, and you as a user.

What Exactly Happened? ASIC vs. Finder.com – The Key Points

On December 15th, ASIC officially filed a lawsuit against Finder Wallet Pty Ltd, a subsidiary of Finder.com and a registered digital currency exchange in Australia. The core of the issue revolves around ‘Finder Earn’, a product that offered users yield on cryptocurrency deposits. ASIC alleges that Finder Earn was essentially an unlicensed financial product.

Here’s a breakdown of ASIC’s accusations:

• Unlicensed Financial Product: ASIC argues that Finder Earn operated as a financial product requiring an Australian Financial Services (AFS) license, which it allegedly lacked.
• Product Disclosure Violations: ASIC claims Finder Wallet failed to meet product disclosure requirements. This means they may not have adequately informed users about the risks and features of Finder Earn.
• Targeted Financial Product Distribution Obligations: ASIC also alleges breaches related to how Finder Wallet targeted and distributed this financial product to consumers.

Essentially, ASIC believes Finder Earn exposed users to potential harm by offering a product that might have been unsuitable for them without proper licensing and disclosures.

What Was ‘Finder Earn’ and Why Did ASIC Target It?

Finder Earn was designed to offer users a yield on deposits of True AUD (TAUD), an Australian dollar-pegged stablecoin. The product promised an annual yield ranging from 4.01% to 6.01%. But what made ASIC classify it as a problem?

ASIC’s primary concern is that Finder Earn, in their view, functions as a debenture. Let’s break down what that means:

• Debenture Defined: A debenture is essentially a debt instrument, meaning it represents a loan made by the investor to the issuer. Crucially, it’s generally not backed by collateral.
• License Requirement: In Australia, offering debentures typically requires an Australian Financial Services (AFS) license to ensure consumer protection.

ASIC contends that because Finder Earn offered returns on deposited TAUD, it functioned as Finder.com borrowing money from users, thus fitting the definition of a debenture and requiring proper licensing.

Finder.com’s Response: Disagreement and Silence

Finder.com doesn’t see eye-to-eye with ASIC’s assessment. A spokesperson for Finder.com stated, “We do not agree with ASIC’s assessment that Finder Earn is a debenture.” They emphasized their cooperation with ASIC since Finder Earn’s launch in November 2021 and their full transparency in providing requested information.

Interestingly, Finder Earn was discontinued, or “sunsetted,” on November 24th. While ASIC suggests this happened because they raised concerns, Finder.com attributes the closure to a “strategic business decision” driven by rising interest rates, not regulatory pressure. They stated the sunsetting was already underway when ASIC indicated they would be taking a closer look.

When asked if Finder.com would fight the lawsuit, their response was telling: “Finder will not be commenting further as this matter is now before the courts.” This suggests they are keeping their options open and are currently focused on legal strategy rather than public debate.

Key Takeaways and Implications for the Crypto Industry in Australia

This lawsuit against Finder.com highlights several critical points for the crypto industry in Australia and for anyone involved in crypto products:

• Regulatory Scrutiny is Intensifying: ASIC’s action against Finder.com, following the Block Earner case, sends a clear message: Australian regulators are paying close attention to crypto yield products and are prepared to enforce existing financial regulations.
• “Crypto” Doesn’t Mean Exemption: As Sarah Court, ASIC’s deputy chair, stated, “just because an offer involves a crypto-asset related product does not guarantee it will fall outside the current regulatory regime.” Crypto businesses cannot assume they operate outside traditional financial rules.
• Consumer Protection is Paramount: ASIC’s focus is clearly on protecting consumers. They are concerned about products that may carry risk and are offered without proper licensing, disclosure, and suitability assessments.
• Clarity Still Needed: While ASIC is enforcing existing laws, there’s still ongoing debate about the best way to regulate the crypto space. Cases like this underscore the need for clearer, more specific regulations tailored to the unique aspects of crypto assets and DeFi (Decentralized Finance).

What’s Next?

The case is now before the courts, and the outcome will be significant. It could set precedents for how crypto yield products are regulated in Australia. We’ll be watching closely to see how Finder.com responds and what the legal ramifications will be.

For now, it’s a reminder that the crypto landscape in Australia is evolving, and regulatory oversight is becoming increasingly important. If you’re involved in crypto, whether as a business or an investor, staying informed about these developments is crucial.

Important Note: Both ASIC and Finder.com have confirmed that all user funds from Finder Earn were fully returned when the product was terminated.