Recent reports revealed that the Australian Securities and Investment Commission (ASIC) has obtained its first victory in a cashless payment case involving cryptocurrencies. According to the documents, an Australian court has partly ruled in favor of the watchdog's claim against BPS Financial Pty Ltd (BPS).
“Qoin Scheme” earns $26 million in sales
In 2022, ASIC I started Civil penalty proceedings against BPS for allegedly “misleading, false or deceptive” advertising and engaging in unlicensed operations with cashless payment facilities involving a crypto-asset token.
The Australian regulator claimed that the Qoin Facility was a “cashless payment facility” set up by the company in 2020. The “Qoin Scheme” included Qoin tokens, a Qoin wallet, and a distributed digital ledger implemented by blockchain technology.
Furthermore, ASIC alleged that BPS promoted tokens to retail consumers and business owners as a method of payment for “goods and services provided by Coin Merchants.”
However, currencies can only be traded on the BTX exchange, which is operated by Block Trade Exchange Pty Ltd (BTX), a subsidiary of BPS. The cryptocurrency exchange appears to have only allowed Qoin tokens to be traded in Australian dollars, and over time, it allegedly imposed restrictions that limited the ability to exchange tokens.
According to the press release, the Qoin wallet had more than 93,000 users by September 2022. Additionally, it received more than 40 million Australian dollars, which is about 26.5 million US dollars, from Qoin token sales.
Court rules in favor of the IEA
On 3 May 2024, the Australian Federal Court found BPS guilty of most of the charges brought by ASIC. Judge J. Downs to rule That the company “engaged in unauthorized conduct when offering the Qoin Wallet, a cashless payment method that uses a crypto-asset token.”
Justice Downes held that BPS had breached the Corporations Act for at least 10 months in 2020 because it did not hold an Australian financial services licence. As a result, the company was not allowed to “issue or advise on the Qoin Wallet.”
Furthermore, the judge found that the company engaged in misleading marketing and representation of the product. The reasons for this ruling include BPS's false claims that a Qoin wallet was officially registered and that said wallet could be used to purchase goods and services from an “increasing number of Qoin merchants” when the number was declining.
Qoin Merchant's decresing numbers over the years. Source: ASIC
In addition, the court found that the only cryptocurrency exchange that accepted Qoin before November 2021 was the BTX exchange. This contradicts claims that Qoin tokens can be traded for other crypto assets or Australian dollars from various exchanges.
A clearer regulatory framework for cryptocurrencies?
Joe Longo, Chairman of ASIC, sees this as “an important ruling as the first court finding against cashless payment facilities involving cryptocurrencies.” However, the court did not agree with all of ASIC's arguments against BPS.
According to the official document, Judge Downs disagreed with the regulator's claim that the Qoin Wallet and Qoin Blockchain were one scheme as part of the Qoin Facility:
Contrary to ASIC's submission, the Qoin Blockchain, a means of acquiring Qoin and a means by which business operators holding Qoin wallets can register as Qoin merchants are not components of, and are not themselves, the mechanism that allows a user to make a non-cash payment.
The court's rejection becomes a decisive ruling against the regulator's attempt to classify blockchain technology as a financial product under Australian law. According to the head of ASIC, the agency has taken several enforcement actions against crypto asset companies “with the aim of clarifying what a regulated product is and when a provider needs a licence.”
Finally, Longo added that the implementations are intended to send a message to the cryptocurrency community:
These actions should send a message to the cryptocurrency industry that its products will continue to be subject to scrutiny by ASIC to ensure consumers are protected and comply with regulatory obligations.
Total crypto market capitalization is at $2.3 trillion in the weekly chart. Source: TOTAL on TradingView
Featured image from Unsplash.com, chart from TradingView.com