Many Australians today own crypto assets, whether it be cryptocurrencies, NFT or other crypto assets. Several businesses in and outside of Australia provide crypto-related services to these Australians, like providing a platform to buy and sell crypto assets, stake crypto assets, or get credit using crypto assets as security.
If your business engages in crypto-related services or products in Australia, consider if your service or product is a financial service under Australian law. This article explains when a crypto service or product is likely to be seen as a financial service.
What are Financial Services?
You provide a financial service if your business sells, deals with or provides financial advice in connection with financial products. Examples of financial services include:
- advising your customers about financial products, including advising them to invest in a particular financial product;
- dealing with financial products for other people;
- holding financial assets on trust for a client; and
- making a market for a financial product.
Your crypto services are likely to be considered a financial service if you provide services like those described above in connection with crypto assets, which may be considered a financial product under Australian law.
A financial product is an instrument issued by financial institutions like banks or other companies that a person can acquire as a way of:
- making a financial investment (like investing in shares or other securities);
- managing financial risks (like obtaining an insurance policy);
- borrowing money (like getting loans or credit cards); or
- saving money (like making term deposits).
Examples of financial products include securities such as:
- shares;
- bonds and debentures;
- an interest in a managed investment scheme;
- derivatives and non-cash payment facilities; and
- life insurance.
What Crypto Assets are Financial Products?
Australia currently does not have specific law dealing with whether certain crypto assets are financial products. Instead, if a crypto asset has features of a financial product, it may be considered a financial product.
A helpful exercise to determine if a crypto asset is a financial product is to analyse whether that crypto asset is likely to be considered one of Australia’s four main types of financial products:
- an interest in a managed investment scheme;
- derivatives;
- securities; or
- non-cash payment facilities.
Interest in Managed Investment Schemes
A managed investment scheme is a type of collective investment vehicle where a group of individuals pool their money or other assets (like crypto assets) to collectively invest in a joint venture. The aim is to procure certain rights, like the right to get a financial return from the scheme.
The rights each investor has in the scheme are called an interest. An interest in a managed investment scheme is a financial product in Australia. Therefore, any crypto assets that enable individuals to pool their money to collectively own and generate returns may be a managed investment scheme. Likewise, any interest in that scheme may be a financial product.
Derivatives
A derivative is an instrument whose value comes from the value of another underlying asset, like a forex pair or a commodity. Any crypto asset whose value is linked or connected to another asset will likely be seen as a derivative and, therefore, a financial product.
Securities
Securities are instruments like shares, bonds and debentures, which people invest in for financial returns. They have distinctive features. For example, a share in a company gives you part ownership of that company. You may also receive rights like procuring a financial return if the company is profitable and voting rights. If a crypto asset you deal with has features like that of securities, that crypto asset may be a financial product.
Non-Cash Payment Facilities
Non-cash payment facilities enable payment without the physical delivery of cash and allow you to make payments to more than one person. Cryptocurrencies are generally not seen as non-cash payment facilities. However, if a crypto asset has extra features that enable non-cash payment, it may be seen as a financial product.
Continue reading this article below the formLegal Obligations to Consider
If your FinTech business provides services in connection with crypto assets that are financial products and those services are seen as a financial service in Australia, you must comply with various legal obligations. Unless an exception applies, this includes obtaining an Australian Financial Services Licence (AFSL). Alternatively, you may need to become an authorised representative of an AFS licensee.
Other legal obligations will depend on whether your services target retail or wholesale clients. For example, there are stricter legal obligations if your services target retail clients.
This fact sheet outlines your rights and obligations as an AI artist regarding intellectual property and copyright.
Key Takeaway
If your FinTech business provides crypto asset-related services, consider whether your service is a financial service under Australian law. Financial services include selling, dealing, or providing financial advice in connection with a financial product. Likewise, crypto-assets can be financial products if they have the characteristics of a financial product. If your service is a financial service, you must comply with various legal obligations, like obtaining an AFSL.
If you have questions concerning whether your business is a financial service, our experienced fintech lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
Frequently Asked Questions
You provide a financial service if your business sells, deals with or provides financial advice in connection with financial products.
A financial product is an instrument that a person can acquire as a way of:
We appreciate your feedback – your submission has been successfully received.
