ASIC crypto enforcement action signals focus on sector

In a speech on 3 March 2022, ASIC Chair Joe Longo stated that one of ASIC’s priorities for 2022 was to address “the deceptive promotion of riskier asset classes such as crypto”. 

In a timely example, ASIC has announced that Australian crypto lender Helio Lending Pty Ltd (Helio) has been charged with falsely claiming that it had an Australian Credit Licence (ACL).

Helio provides crypto currency lending

Helio’s business is focused on connecting clients to loan providers who will accept their crypto assets as collateral for a loan in a traditional currency. ASIC has said that Helio offered cryptocurrency-backed loans to consumers, using digital currency as security over the loan.

ASIC alleged Helio falsely represented it had an ACL

ASIC alleged that around February 2019, Helio falsely represented on its website that it held an ACL and published a news article on its website which stated that it held an ACL. ASIC has alleged that Helio was neither an ACL holder nor a credit representative of an ACL holder.

The National Consumer Credit Protection Act 2009 (Cth) (NCCPA) provides that a person must not hold out that they hold an ACL if that is not the case. There are civil and criminal penalty consequences of contravening this provision.

ASIC’s action against Helio confirms increasing regulation for the crypto sector

In recent months the Government and ASIC have both signalled an intention to enhance the regulation of businesses involved with crypto assets.  Two important examples of the broader regulatory push are:

• the consultation paper released by Treasury on 21 March 2022 which proposes to regulate crypto assets under a regime similar to the Australian Financial Services Licence (AFSL) regime; and
  
  
• the information paper released by ASIC on 21 March 2022 warning financial influencers (‘finfluencers’) - social media influencers who discuss financial products and services online - that they may be contravening the law by providing financial product advice, among other things, without an AFSL.

In our view, the regulatory developments above reflect:

• the Government and ASIC’s desire to ensure consumers have confidence the advice they are receiving is appropriately regulated. Consumer confidence will be engendered by appropriately trained and licenced / authorised persons giving advice on investments, and conflicts of interest being appropriately managed under the AFSL regime where the underlying crypto assets are ‘financial products’.
  
  
• emerging areas of risk specific to crypto assets are addressed in a regulatory framework that is fit for purpose.

The bolstering of crypto regulation, as described above, is occurring concurrently with the criminal prosecution of Helio in respect to its crypto-related conduct. While criminal prosecutions for breaches of the NCCPA traditionally have been rare, it does not appear to be a coincidence that these proceedings were commenced shortly after ASIC’s Cathie Armour spoke at the AFR Crypto Currency Summit about regulating crypto asset-based investment products within the financial services framework.  

This case is most likely intended to be an advanced warning from ASIC signalling its intention to use the full extent of its powers to bring discipline to the sector. We expect further enforcement action of this nature to come, which no doubt will be followed closely by litigation funders and class action experts.

Equally, ASIC has shown a willingness to seek banning orders against individuals for conduct it considers to be likely to cause significant harm to the public and expect that its approach to crypto in this regard will be no different.

The prosecution of Helio is listed for mention in early July in the Melbourne Magistrates Court.

Key takeaways

As can be seen by the criminal prosecution of Helio, it is important that all crypto firms consider whether they are, or hold themselves out to be, operating financial markets, providers of credit, or providers of financial services or designated services for the purposes of the AML/CTF Act.

In the future, a broader range of players in this growing sector (‘crypto asset secondary service providers’) can expect to be more directly brought into ASIC’s regulatory enforcement net.

Government has consistently signalled a shift towards a ‘fit for purpose’ regulation of the crypto assets sector. Currently, a narrow range of crypto assets are captured as financial products. Reforms will likely result in many additional types of crypto assets, platforms and players becoming subject to regulation.