Full Federal Court Overturns ASIC Win in Block Earner Case: Earner Product Not a Financial Product

In a significant judgment, the Full Federal Court has allowed an appeal by digital asset service provider Block Earner, ruling that the company did not require an Australian Financial Services Licence (AFSL) to offer its fixed-yield crypto product, Earner. This decision overturns the Federal Court’s earlier ruling that had classified the Earner product as a financial product under the Corporations Act.

The Australian Securities and Investments Commission (ASIC) had appealed the original decision, seeking to impose penalties on Block Earner for allegedly offering unlicensed financial services. However, with the Full Court determining that Earner is not a financial product, ASIC’s appeal was dismissed. As a result, the question of whether Block Earner should be penalised became irrelevant.

Between March and November 2022, Block Earner offered two key products:

ASIC alleged that the Earner product constituted a financial product and that Block Earner had breached Chapter 7 of the Corporations Act by providing financial services without a licence. ASIC sought both injunctions and financial penalties.

In a February 2024 decision, the Federal Court sided with ASIC, ruling that Earner likely constituted a managed investment scheme (MIS), a financial investment, or potentially a derivative. However, in June 2024, the Court relieved Block Earner from penalties, citing the company’s legal advice, its cooperation with regulators, and the novelty of the legal questions involved. ASIC appealed the penalty decision, while Block Earner cross-appealed the core finding that Earner was a financial product.

The Full Federal Court ultimately found that the Earner product did not meet the legal definitions of:

The Court found that Earner did not meet the key criteria of a managed investment scheme under section 9 of the Corporations Act. Specifically, there was no clear link between user contributions and rights to a common financial benefit, and the funds were not pooled in a manner consistent with an MIS (see paragraphs [50]–[77]).

Under section 763B, the Court ruled that Earner did not qualify as a financial investment. The terms of the product did not support the conclusion that user contributions were intended to generate returns or benefits for the investor.

The Court also held that the Earner product did not constitute a derivative under section 761D of the Act. It clearly distinguished between Block Earner’s various offerings (Earner, Access, and exchange services), determining that they did not form a unified or derivative-based arrangement.

This ruling provides much-needed clarity for digital asset providers navigating Australia’s evolving financial services regulatory landscape. The judgment underscores the importance of careful product design and legal structuring and could influence future regulatory and legal interpretations in the digital asset space.

For more information contact Rosemary Kanan.

This article is prepared for the general information of interested persons. It is not, and does not attempt to be, comprehensive in nature. Due to the general nature of its content, it should not be regarded as legal advice and should not be relied upon as legal advice. Formal legal advice should be sought in relation to particular transactions or on matters of interest arising from this communication.