On 3 May 2024, the Federal Court of Australia published its judgment in the case of Australian Securities and Investments Commission v BPS Financial Pty Ltd [2024] FCA 457 (“ASIC v BPS”).
The case concerned a non-cash payment facility (known as ‘Qoin Wallet’) that enabled individuals and businesses to buy and sell goods and services in an online marketplace using a particular cryptocurrency (known as ‘Qoin’). BPS Financial Pty Ltd (“BPS”) issued Qoin Wallet.
ASIC alleged that by issuing Qoin Wallet, BPS unlawfully carried on a financial services business without holding an Australian financial services licence (“AFSL”). BPS argued that it was covered by the exemptions in sections 911A(2)(a) and 911A(2)(b) of the Corporations Act 2001 (Cth) (“Corporations Act”). These exemptions are known as the ‘authorised representative exemption’ and the ‘intermediary authorisation exemption’ respectively.
Findings
The Court found that a person can rely on the authorised representative exemption where they are issuing financial products as the authorised representative of an Australian financial services (“AFS”) licensee. This finding contradicts the interpretation of the authorised representative exemption expressed by ASIC in Information Sheet 251 (“INFO 251”).
The Court also found that a person cannot rely on the intermediary authorisation exemption where they are:
issuing financial products under an intermediary authorisation with an AFS licensee; and
making offers to arrange to issue those financial products as an authorised representative of the AFS licensee.
This finding confirms the interpretation of the intermediary authorisation exemption expressed by ASIC in INFO 251.
Despite the application of the authorised representative exemption, the Court found that BPS was not authorised to issue Qoin Wallet under two of the three authorised representative agreements that it purported to have relied upon. This was due to the poor drafting or inattentive use of those agreements, which authorised BPS to:
provide financial services in relation to non-cash payment facilities issued by the AFS licensee, rather than non-cash payment facilities that it issued itself; and
arrange for clients to apply for, acquire or dispose of non-cash payment facilities, rather than issue non-cash payment facilities.
Implications
This case has the potential to radically affect the way in which product issuers (and perhaps even other financial services industry participants, such as providers of custodial and depository services) are authorised. It also serves as a valuable reminder to AFS licensees and their authorised representatives to ensure that all authorised representative agreements are properly and accurately drafted.
If you have any questions in relation to the above, please get in touch with Cowell Clarke’s Financial Services Team at Compliance@CowellClarke.com.au.
This publication has been prepared for general guidance on matters of interest only and does not constitute professional legal advice. You should not act upon the information contained in this publication without obtaining specific professional legal advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication and to the extent permitted by law, Cowell Clarke does not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting or refraining to act in relation on the information contained in this publication or for any decision based on it.