Is it a bird, is it a plane or is it a financial product? ASIC issues updated guidance for digital asset businesses

The updated Information Sheet 225 (INFO 225)[1] provides guidance for businesses issuing, or providing services related to, digital assets in Australia by providing examples of the circumstances in which a product or service is likely to be a regulated financial product under the Australian financial services (AFS) regime. Where the AFS regime applies and an exemption is not available, businesses will be subject to strict regulatory obligations, including (amongst other things) the requirement to hold an AFS licence to deal in or provide financial product advice on the product in Australia, design and distribution obligations, disclosure requirements and the requirement to comply with Australian consumer protection laws.

INFO 225 remains important notwithstanding the release of exposure legislation for regulating digital asset platforms (DAPs) and tokenised custody platforms (TCPs) as new financial products. Whilst the exposure legislation provides limited safe harbours for certain activities, including intermediated staking facilitated by a licenced DAP, digital assets that meet the statutory test of a financial product will still be regulated as financial products.

Although INFO 225 was criticised as expanding the regulatory perimeter beyond what is generally considered to be within the scope of the AFS regime, any guidance is welcome.

Here are the highlights from the updated INFO 225.

All rights and benefits must be considered

A large focus of INFO 225 is the rights and benefits to which the holder of a digital asset is entitled. “Rights” should be interpreted broadly; they may be described in the product’s white paper, but they may also be determined from surrounding circumstances such as the way the product is marketed or how consumers use the product in practice.

INFO 225 states that, when assessing their product against the AFS regime, businesses will need to not only consider the rights and benefits attached to the digital asset, but the rights and benefits attached to the arrangement through which the digital asset is provided as well. This draws on the existing interpretation rules, which require the financial product test to be applied to a bundle of arrangements that may not individually be a financial product where it is reasonable to assume that the parties to the arrangement regard them as a single arrangement.

A key challenge for businesses moving forward will be identifying the “arrangement’ which constitutes the financial product. ASIC recognises this is an evolving area of law, as demonstrated in the court proceedings commenced by ASIC against BPS Financial Pty Ltd (BPS) and Web3 Ventures Pty Ltd (trading as Block Earner) (Block Earner):

• In ASIC v BPS,[2] BPS offered a platform pursuant to which users could create a wallet, acquire Qoin cryptocurrency and acquire products and services from businesses registered with the platform by using Qoin. ASIC argued that the overall Qoin platform constituted a single scheme implemented by BPS for a substantial purpose of enabling users to make payments for goods and services otherwise than by the physical delivery of cash, and thus the overall Qoin platform was a non-cash payment (NCP) facility (NCP facilities being financial products). However, the Federal Court disagreed and accepted BPS’ argument that it was the Qoin wallet (not the overall Qoin platform) which was the NCP facility.
• In ASIC v Block Earner,[3] the Earner product provided by Block Earner allowed users to exchange AUD for eligible cryptocurrency, the cryptocurrency would then be loaned to Block Earner in exchange for a fixed yield. At the end of term, customers had the option of receiving the cryptocurrency in kind, moving the cryptocurrency into a different service provided by Block Earner or having the cryptocurrency converted to AUD. In support of its argument that the arrangement was a derivative (which is a financial product), ASIC asserted that the conversion of the digital assets to AUD after the loan of digital assets ended formed one arrangement. The Federal Court disagreed, finding that the conversion of cryptocurrency to AUD at the end of term was a distinct process and should not be aggregated with other components of the Earner product to constitute a single arrangement.[4] ASIC was recently granted special leave to appeal the Block Earner case to the High Court.

Common categories of financial products

INFO 225 identifies common (but non-exhaustive) categories of financial products that a digital asset, or a product involving a digital asset, may constitute. These include a financial investment facility, an interest in a managed investment scheme, a security, a derivative or an NCP facility. As a broad overview of the guidance:

• If the digital asset allows customers to receive a financial return or benefit (e.g. by the digital asset increasing in value on an exchange, or by generating a cash flow), and the digital asset is marketed and intended to be used for those purposes, then the digital asset is likely to be a financial investment facility. Alternatively, if a digital asset is not intended to be used as (and is not marketed as) a means through which customers generate a financial return or benefit, then the digital asset may not be a facility for making financial investments even though the value of the digital asset may increase or decrease over time.
• An arrangement through which holders are issued digital assets with a value linked to underlying assets held in a trust for all holders may be a managed investment scheme if the arrangement generates financial benefits for the holders. Alternatively, if an arrangement generates a financial benefit for the business only (and not the holders of the digital assets), the arrangement may not be a managed investment scheme.
• Digital assets may resemble a security, e.g. if the rights attached to the digital assets include ownership and voting rights. Generally however, there needs to be a sufficient connection between the use of the initial funds raised in issuing a digital asset and the potential capital gains. For example, “meme coins” which do not entitle the holder to any rights and which are not connected with the success of the issuer or any other business, are unlikely to be a security or a financial product. On the other hand, corporate bonds which are tokenised on a blockchain, and which otherwise have the features of typical bonds, are likely to be a debenture which is a security.
• Arrangements that allow clients to speculate in the change in a value of a digital asset (eg contracts for difference, or potentially wrapped tokens where the price of the wrapped digital asset is derived from another digital asset) may be a derivative.
• Digital assets, and digital asset wallets (whether custodial or non-custodial), may be an NCP facility if they enable a user to make payments to a third party – which is relatively controversial having regard to current views.

No action until 30 June 2026

On the same day as releasing updated INFO 225, ASIC also issued a no-action letter under which it commits not to take action against businesses providing financial services in relation to a digital asset which is a financial product, provided that (in addition to meeting other conditions):

• on or before 30 June 2026, the business either applies for an AFS licence or notifies ASIC of its intention to cease providing financial services after a specified date (being no later than 30 June 2026 and no later than 3 months after the date of the notice);
• the service is provided by the business between 29 October 2025 and the date on which ASIC grants or refuses the business’ AFS licence application, or notifies the business that it refuses to register or receive its AFS licence application, or the business withdraws their AFS licence application (whichever is applicable); and
• if the business is a foreign company, it has registered as a registered foreign company in Australia and has appointed an Australian local agent (and the company continues to meet those requirements during the relevant period).

ASIC’s no-action position does not apply in respect of:

• crypto lending/earn products (facilities under which a person lends digital assets to others or pays a return to customers from the use of digital assets);
• non-cash payment facilities (other than stablecoins) where a digital asset is used to make a payment; or
• derivatives (other than wrapped tokens) in relation to digital assets.

Closing thoughts

The updated INFO 225 arrived at an interesting time, coming shortly after releases by the Treasury of exposure draft legislation proposing to increase the regulation of digital assets in Australia, including by way of a new tailored regulatory regime for DAPs and TCPs as well as reforms to the payments licensing framework. The updates also follow a string of litigation between ASIC and digital asset businesses in 2024 and 2025, with ASIC recently having been granted leave to appeal the Block Earner case to the High Court, after the Federal Court dismissed ASIC’s claims and adopted a narrower interpretation of certain financial products. While ASIC makes it clear that INFO 225 is based on current AFS laws and that the information sheet may, again, be updated as new developments arise, it is unsurprising that, during the public consultation process, various industry stakeholders expressed concerns over the release of the updated INFO 225 prior to the finalisation of the proposed regulatory reforms.

The key takeaway for businesses is to obtain early advice on whether a digital asset or digital-asset-related service is likely to constitute a financial product, and whether any licensing exemptions or the above-referenced no-action letter, can be relied upon to bring the digital asset or service to market sooner.

If you would like to discuss how Australia’s financial services laws affect your business, please get in touch with Addisons’ Funds & Financial Services team.