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Australian court awards victory to Watchdog

Recent reports have revealed that the Australian Securities and Investments Commission (ASIC) has achieved its first victory in a case involving cashless payments involving cryptocurrencies. The documents show that an Australian court has partially upheld the regulator’s lawsuit against BPS Financial Pty Ltd (BPS).

“Qoin Scheme” earns $26 million in sales

In 2022, ASIC commenced civil penalty proceedings against BPS for allegedly “misleading, false or deceptive” advertising and engaging in unlicensed operations using a cashless payment method using a cryptographic asset token.

The Australian regulator said the Qoin Facility was a “cashless payment facility” created by the company in 2020. The “Qoin Scheme” included Qoin tokens, a Qoin wallet, and a distributed digital ledger implemented using blockchain technology.

Additionally, ASIC alleged that BPS promoted the tokens to retail consumers and business owners as a method of payment for “goods and services offered by Qoin Merchants”.

However, the tokens could only be traded on the BTX exchange, operated by Block Trade Exchange Pty Ltd (BTX), a company that is part of BPS. The cryptocurrency exchange seemingly only allowed the exchange of Qoin tokens for Australian dollars, and over time it allegedly imposed restrictions that limited the ability to exchange the token.

According to the press release, by September 2022, the Qoin wallet had over 93,000 users. Additionally, he received over A$40 million, or approximately $26.5 million, from the sale of Qoin tokens.

The court rules in favor of Watchdog

On May 3, 2024, the Australian Federal Court found BPS guilty of most of the charges brought by ASIC. Judge J. Downes ruled that the company “engaged in unlicensed conduct by offering ‘Qoin Wallet’, a cashless payment method using a cryptocurrency token.”

Justice Downes found that BPS was in breach of the Corporations Act for at least 10 months in 2020 because it did not hold an Australian financial services license. As a result, the company was not authorized to “issue or provide advice regarding the Qoin wallet.”

Additionally, the judge found that the company engaged in misleading marketing and presentation of the product. Reasons for this decision include false claims by BPS that the Qoin wallet has been officially registered and that the wallet can be used to purchase goods and services from a “growing number of Qoin sellers” as its numbers decline.

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Qoin Merchant's decresing numbers over the years. Source: ASIC

Additionally, the Court found that the only cryptocurrency exchange that accepted Qoin before November 2021 was BTX. This contradicts claims that Qoin tokens can be exchanged for other crypto assets or AUD from various exchanges.

A clearer regulatory framework for cryptocurrencies?

ASIC chairman Joe Longo considers it a “significant ruling as the first court judgment against a cashless payment service using cryptocurrencies”. However, the Court did not agree with all of ASIC’s arguments against BPS.

According to the official document, Judge Downes disagreed with the regulator’s contention that Qoin Wallet and Qoin Blockchain constitute a single system within the Qoin Facility:

Contrary to ASIC’s claims, the Qoin Blockchain, the method of purchasing Qoin and the method by which business entities holding Qoin wallets can register as Qoin sellers, are not elements of a mechanism that allows a user to make non-payment in cash.

The tribunal’s rejection becomes a key ruling against the regulator’s attempt to classify blockchain technology as a financial product under Australian law. According to ASIC’s chairman, the agency has taken several enforcement actions against crypto asset companies “to clarify what is a regulated product and when a provider needs a licence”.

Finally, Longo added that the law enforcement aims to send a message to the crypto community:

These proceedings should send a signal to the crypto industry that its products will continue to be scrutinized by ASIC to ensure consumer protection and compliance with regulatory obligations.

crypto, TOGETHER

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