ASIC seeks leave to the High Court in Block Earner saga – testing the limits of financial regulations
The legal battle between the Australian Securities and Investments Commission (ASIC) and cryptocurrency service provider Block Earner has taken another turn, with ASIC seeking special leave from the High Court of Australia to appeal the Full Federal Court’s recent decision in ASIC v Web3 Ventures Pty Ltd [2025] FCAFC 58.
We discussed this ongoing litigation in a previous insight.
In its amended application filed on 20 May 2025, ASIC argues that the Full Court erred in two key respects: first, by finding that the Earner product was not a facility through which a person makes a financial investment under s 763B of the Corporations Act 2001 (Cth) (Act), and second, by finding that the product was not a derivative under s 761D of the Act. ASIC frames the questions raised as matters of public importance, with consequences that extend well beyond cryptocurrency markets.
Notably, ASIC does not seek to challenge the Full Court’s previous finding that the Earner product was not a managed investment scheme under section 9 of the Act.[1]
Key takeaways
- ASIC is not backing down. This is a high-stakes appeal aimed at securing clarification on two of the Act’s core definitions (ss 763B and 761D). ASIC is positioning this as a test case for the boundaries of Chapter 7 of the Act.
- Fixed-yield crypto products may still be caught. ASIC argues that the mere presence of a fixed return does not remove a product from the financial product regime. If the High Court grants leave and agrees, it will bring cryptocurrency lending models back within scope.
- The challenge centres on statutory construction. At its heart, the appeal is about whether the High Court of Australia should interpret Chapter 7 definitions functionally and flexibly (as ASIC urges), or narrowly and by legal form (as the Full Federal Court applied).
ASIC’s challenge to the interpretation of ‘makes a financial investment’
ASIC’s central argument is that the Full Federal Court’s interpretation of section 763B of the Act introduced a ‘gloss’ that does not appear in the statutory text. The Court held that because Block Earner used customer’s cryptocurrency to generate profit for itself, and not for the investor, the product did not fall within section 763B(a)(i) or (iii) of the Act.
ASIC submits that this introduces a distinction that is not found in the legislation. According to its application, the statutory test does not require the whole of the return to be passed to the investor, nor does it require the return to vary with the success or failure of the issuer's activity. ASIC maintains that the Earner product generated a return for investors, even if Block Earner retained a margin.[2]
ASIC further argues that the business model of using pooled customer funds to lend to third parties, while paying a fixed yield, falls squarely within the legislative intent of section 763B. This, ASIC says, is supported by the Explanatory Memorandum to the Financial Services Reform Bill 2001, which explicitly contemplated that deposit accounts offering fixed returns would be covered by the provision.[3]
ASIC also challenges the Full Court’s conclusion that the fixed nature of the return excluded the Earner product from being a financial investment facility. Instead, ASIC submits that such a view would defeat the purpose of the legislation, which was designed to be flexible and technology-neutral to accommodate emerging financial products.[4]
By contrast, the Full Court previously rejected the managed investment scheme argument on the basis that customers had no rights to benefits produced by a scheme. Their rights were limited to repayment of principal and fixed interest under the Terms, and the pooled funds were not used to generate returns for users. As a result, the requirements in section 9(a)(i-ii) of the Act were not met. ASIC has not challenged this aspect of the judgment in their application and instead seeks clarity on whether Earner meets the broader definition of ‘makes a financial investment’.
The derivative ground
ASIC also seeks to revive its alternative case that the Earner product was a derivative. The key issue is whether the conversion of cryptocurrency into Australian dollars at the end of the product term results in a variation in value, based on the use of an exchange rate.
Under the Terms of Use, Block Earner was contractually required to repay investors in Australian dollars at the current exchange rate. ASIC submits that this arrangement falls within the meaning of a derivative under section 761D(1)(c) of the Act, which covers contracts where the amount of consideration varies by reference to an index, asset, or rate.[5]
The Full Court previously found that the Earner product and the exchange service were separate and that the exchange back to Australian dollars was optional. ASIC disputes this, arguing that the Terms of Use provided no mechanism for exit into cryptocurrency. The repayment in cryptocurrency, which occurred for some users, was described by the primary judge as ‘ad hoc variations’ and did not alter the product’s fundamental structure.[6] However, according to ASIC, the exchange and yield functions were so closely linked that they must be treated as a single arrangement. The Terms show that conversion to Australian dollars was not optional but integral to both entry and exit from the product.[7]
Structural implications
ASIC emphasises that this case goes beyond the specific facts of Block Earner and their Earner product. ASIC instead sees the Full Court’s decision as narrowing the scope of Chapter 7 in a way that undermines the flexibility intended by Parliament. Indeed, ASIC argues that the Full Court’s approach could create a pathway for fixed-interest or exchange-rate-based products to avoid regulation entirely. In ASIC’s view, this contradicts both the text and object of the Act.[8]
Looking ahead
Although there is no date set for when the High Court of Australia will consider the application, the Court must consider whether to grant ASIC special leave to appeal. If leave is granted, the High Court will have the opportunity to provide much-needed clarity on the scope of Australia’s current financial product regime as it applies to digital and interest-bearing products.
If you would like to understand how this development may impact your licensing obligations or cryptocurrency product design, please get in touch with our team.
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