The Australian digital assets industry has been keenly awaiting the answer to the question:
When a platform takes money from users and generates a return using crypto-assets, does that product fall within the financial services licensing regime?
On 17 June 2026, the High Court of Australia unanimously said it does. However, the implications extend far beyond the digital assets industry.
In Australian Securities and Investments Commission v Web3 Ventures Pty Ltd [2026] HCA 21 (the Block Earner Decision), the Court ruled in favour of Australian Securities & Investments Commission (ASIC) and held that the Earner Product offered by Block Earner was a financial product under the Corporations Act 2001 (Cth) (the Act), both as a financial investment under s 763B and as a derivative under s 761D of the Act. This decision reverses a Full Federal Court ruling that was previously welcomed by the industry and sets a clear regulatory boundary for crypto yield products in Australia.
We covered both the Full Federal Court appeal decision and the primary court’s decision in our previous articles. Below we have unpacked what this means for the entire financial services industry moving forward – because the implications are not confined to digital assets.
Need to know
- The High Court unanimously held that Block Earner’s Earner Product was a financial product both because it was a facility through which a person made a financial investment and because it was a derivative. The decision reverses the Full Federal Court and sets a clear regulatory boundary that extends wider than the digital asset industry.
- Those that are offering, or planning to offer a product in the digital assets space that generates a return for users, should act now to review the product structure, terms of use and licensing position in light of the Block Earner Decision and carefully consider whether you can structure the product falls outside the regulated definition; or commence your Australian financial services licence (AFSL) if you have not already done so.
- TradFi providers of miscellaneous financial investment facilities should review their products to determine if they are also a derivative.
The innovation at the centre of Block Earner Litigation
Block Earner operated an online platform offering the Earner Product in which, under its Terms of Use, a user could nominate an amount of Australian dollars (AUD) to be converted to digital assets, which digital assets would be “lent” to Block Earner via the Earner Product in return for a fixed annual interest rate. Block Earner on-lent the digital assets to third parties at a higher rate than it paid users and retained the margin as profit. Critically, Block Earner was obliged to pay interest to users regardless of the income it earned from its on-lending activities. Block Earner did not hold an AFSL whilst it offered the Earner Product.
The product was novel because it sat between a bank deposit account, a lending facility, and a currency exchange at the same time. Block Earner had structured it with the intent that it be a loan of digital assets, including having the user start the process by clicking a button that read “Lend”, but the accuracy of that characterisation was the subject of the dispute.
Why was it a facility for financial investment under s 763B?
A person makes a financial investment where they give a contribution (money or money’s worth) to another person, who uses it to generate a financial return or other benefit for the investor. The High Court found that all the required elements were satisfied and allowed ASIC’s appeal on this point.
The contribution was AUD, not digital assets
Despite the fact Block Earner characterised the product as a loan of digital assets, when the user clicked “Lend” they were prompted to enter an amount in AUD. The Court found that the user could not have lent digital assets, however, because at the time when the user clicked “Lend”, they did not own any digital assets, and by the time the AUD was converted to digital assets, the user had already acquired the Earner Product by completing the acquisition steps (i.e. selecting “Lend”, nominating a digital asset, nominating an AUD amount and reconfirming acceptance of the Terms of Use).
At no stage prior to that point did any user ever have any rights to any digital assets. Under the Terms of Use, any rights to the digital assets lay with Block Earner. Block Earner’s attempt to characterise the arrangement as a loan of digital assets, with the AUD to digital asset conversion being a separate service that occurred prior to the loan, was rejected by the Court because it was factually inconsistent with how the product actually operated, given that the conversion only happened after the user initiated the transaction by clicking “Lend”.
Block Earner generated a return for users
After completing the acquisition steps, the amount of AUD nominated by the user was used, and intended to be used, by Block Earner to generate a return for the user. The Court rejected the Full Court’s reasoning that Block Earner had generated a return only “for itself”, as this conclusion was based on the fact the product had been characterised as a loan by the lower court. If there had been a loan, this may have been a valid characterisation, but because the High Court found there was no loan at all, the question of for whom a return is generated becomes straightforward, as s 763B does not require the return to flow only to the investor and to no one else. While Block Earner did use the AUD to generate a return for itself, at the same time it was generating a return for the user as well, and nothing in the text of s 763B requires that the financial return be only for the investor.
Why was it a derivative under s 761D?
A financial product is a derivative where an arrangement between the parties requires that consideration may be paid by one party to the other and the value of that consideration, or the arrangement, is ultimately determined by, derived from, or varies by reference to the value or price of something else, including an exchange rate. The High Court held that the Earner Product met this definition as an additional, independent ground for finding it to be a financial product.
The Earner product clearly constituted an arrangement between the user and Block Earner, and it contemplated that at a future time a payment would be made to the user, being the payment of interest and / or the return of the AUD invested in digital assets.
As held by the Court at [68], the amount of AUD a user was entitled to receive at the end of the term depended on the market value of the digital assets in USD and the exchange rate of USD for AUD at that time. Under the Terms of Use, this conversion was part of the product, thus satisfying the derivative test.
Duality of financial products
For the first time, the Court held that a single product could be characterised as two separate financial products under the Corporations Act. In forming this view, the Court had reference to section 762A, and in particular, the words in sub-section 2 which said “whether or not they are within the general definition”, which the Court interpreted to mean that a financial product could fall both within the general and the specific definition of a financial product.
The Court did not consider the significance of the words “subject to” as it appears in sub-section (1) and (2) of s762A and whether this created an order of precedence for the application of the sub-sections.
Exclusions: The credit facility and contract for future provision of services exemptions
Block Earner sought to rely on two exemptions from the Earn Product’s classification as a derivative.
Credit facility exclusion (s 765(1)(h)(i) of the Act)
The High Court found that the credit facility exclusion did not apply because credit facility is defined by reg 7.1.06(1)(a)(iv) of the Corporations Regulations to mean the provision of credit which is not a facility for making a financial investment. Accordingly, it could not simultaneously be a credit facility.
Contract for future provision of services exclusion (s 761D(3)(b) of the Act)
The High Court ruled that the exclusion did not apply because the substance of the arrangement was not a contract for Block Earner to provide an exchange service in the future. The substance was the provision of a return in AUD, and the exchange component was one part of that.
Significance for industry
The Court’s reasoning is not limited to the specific facts of the Earner Product. It established principles of broad application:
- the financial investment definition in s 763B is deliberately overinclusive and is not subject to the implied limits the Full Court read into it;
- the derivative definition in s 761D reaches products where the AUD value of the consideration at exit is determined by reference to something else, including (but not necessarily limited to) an exchange rate; and
- neither definition requires the user to have any right or interest in the issuer’s downstream activities.
Industry concerns
The decision raises legitimate concerns for financial services businesses, including in TradFi. The breadth of the financial investment definition potentially captures a wide range of products beyond the Earner Product and the conclusion that a facility for making a financial investment can also be a derivative is a departure from ASIC policy, which treats authorisations for investment facilities under the general definition as only available where no other financial product characterisation applies.
The decision in our view has left a few unanswered questions.
- Many facilities for making a financial investment are now at risk of also being a derivative. This could conceivably extend into traditional financial services offerings such as MDA offerings that are offered as a miscellaneous investment facility (rather than an MIS), where the amount paid to the investor on exit is calculated by reference to the values of the products held in the MDA.
- Currently, ASIC does not issue an authorisation for miscellaneous investment facilities unless no other financial product definition applies. Where these facilities are now also derivatives, ASIC policy precludes the granting of a dual authorisation.
We await any guidance from ASIC on these issues.
What the industry should do
Businesses operating in the digital assets space should consider taking the following steps in light of the decision:
- review your product terms to ensure they say and do what you think they do. One major factor in the outcome was that what Block Earner believed were two distinct and separate services (i.e. the conversion of digital assets to AUD and then the lending) were covered by a single set of intertwined terms. Businesses should ensure their terms accurately and precisely describe the nature of the product. Where multiple services are being provided, each should have their own distinct and separate set of terms and conditions. However, it is important to remember that simply splitting a product, such as having separate terms for an exchange and for a yield service, will not change the position if those services are economically linked and substantively operate as part of a single offering. If necessary, consider restructuring the product;
- seek advice on whether you require an AFSL and / or have the correct authorisations. Derivatives are excluded from ASIC’s current no-action position and therefore offering these products without a licence exposes you to significant risk.
For more information, please contact Jaime Lumsden and Nicholas Pavouris.
