Is Your Crypto Asset a Financial Product? ASIC’s Updated Guidance & Regulation

Introduction

For any crypto project operating in Australia, understanding whether a digital asset qualifies as a “financial product” is a critical first step that shapes its entire regulatory journey. The Australian Securities and Investments Commission (ASIC) applies a technology-neutral approach, meaning the classification hinges on the token’s economic substance and the rights it confers, as defined under the Corporations Act 2001 (Cth).

This classification is crucial because it answers the core question, do I need an Australian Financial Services Licence (AFSL)?, which brings significant compliance obligations. This guide provides a practical framework for founders and issuers to understand how ASIC analyses a token’s function and structure to determine its regulatory status.

Why Crypto Asset Classification Matters

Australia’s Tech-Neutral Regulatory Approach

Australia’s financial services laws are guided by the principle of technology neutrality, meaning regulations apply based on a crypto asset’s economic substance and function rather than the technology used to create it.

ASIC assesses digital assets under existing laws, primarily the Corporations Act 2001 (Cth). Under this approach, a token’s regulatory status is determined by:

• The legal rights attached to it
• The promises associated with it
• Not its marketing label (such as “utility token”)

This functional assessment serves as the critical first step in determining compliance obligations for any crypto project. Importantly, these Australian laws apply to any entity offering products or services to users in Australia, regardless of whether the business is based offshore or operates on a decentralised structure.

Financial Product Status & AFSL Obligations

The classification of a crypto asset is crucial because it determines whether an AFSL is required. If a token is deemed a “financial product” under the Corporations Act 2001 (Cth), any business that issues, advises on, or deals in that asset must hold an AFSL.

This requirement applies to a wide range of participants in the crypto ecosystem, including:

• Token issuers
• Exchanges
• Brokers

Obtaining an AFSL triggers significant and mandatory compliance duties. These obligations are comprehensive and include:

• Continuous reporting to ASIC
• Establishing and maintaining detailed compliance plans
• Rigorous vetting and training of Responsible Managers
• Preparing a compliant Product Disclosure Statement (PDS) for retail investors

Failing to recognise that a token is a financial product can lead to serious consequences of operating without an AFSL, which constitutes a serious breach of Australian law.

Consequences of Unlicensed Financial Services

Operating a financial services business without the required AFSL can lead to substantial penalties and severe reputational damage. The consequences of non-compliance are designed to act as a strong deterrent and align the digital asset sector with the broader financial services industry.

Penalties for providing unlicensed financial services can include:

• Fines of up to $16.5 million
• A percentage of the turnover or profit derived from the unlicensed activity

Beyond financial penalties, ASIC has demonstrated a strong commitment to taking enforcement action against non-compliant firms. These court actions impose fines and cause significant harm to a company’s reputation, which can erode consumer trust and impact its long-term viability in the Australian market.

How ASIC Classifies Crypto as a Financial Product

ASIC’s Core Framework for Digital Assets

ASIC advises founders and issuers to evaluate their crypto asset against three primary factors to determine if it qualifies as a financial product. This framework focuses on the economic substance and the rights attached to the token, rather than its technological label.

ASIC’s assessment considers the following key aspects of a digital asset:

Assessment Factor	Description
Legal Rights Attached	Analyses whether the token grants ownership rights, voting power, or entitlements to profit distributions or dividends, similar to traditional equity.
Function or Purpose	Investigates the token’s intended use and economic reality, such as if its value is linked to an off-platform asset, commodity, or market index.
Funding Structure	Examines the method used to fund the asset, particularly if investor funds were pooled in a common enterprise expecting financial benefit (a trigger for an MIS).

The Digital Currency Exception for Crypto

Pure digital currencies, such as Bitcoin or Ether, are generally not considered financial products under current Australian law. This position is supported by both ASIC and the Reserve Bank of Australia (RBA), which has assessed that these cryptocurrencies do not display the key characteristics of money.

The RBA’s assessment is based on three main functions that money typically serves:

Traditional Function of Money	RBA’s Assessment for Cryptocurrencies
Widely accepted means of payment	Not used for everyday transactions on a broad scale, despite some businesses accepting them.
Stable store of value	Lacks stability due to high price volatility, causing significant fluctuations in purchasing power.
Common unit of account	Goods and services in Australia are priced in Australian dollars, not in digital currencies.

Consequently, these types of digital assets are typically classified as property for legal and tax purposes rather than as financial products under the Corporations Act 2001 (Cth). This means an AFSL is generally not required simply to trade, hold, or provide advice on pure digital currencies.

Common Financial Product Pathways for Crypto

While pure digital currencies are often exempt, many crypto assets are structured in ways that cause them to be classified as regulated financial products. The legal status depends on the specific rights and features attached to the token.

A crypto token may fall into several common financial product categories under the Corporations Act 2001 (Cth). These categories typically include:

Financial Product Category	Description
A payment system	Applies if a token, such as a stablecoin, is designed primarily to facilitate non-cash payments (NCP facility).
A derivative	Applies if a token’s value is derived from an underlying asset, rate, or index, creating financial risk exposure.
A debenture	Applies if a token represents money deposited with or loaned to the issuer, creating a debt that must be repaid.
A share	Applies if a token confers ownership rights in the issuing entity, such as voting rights or a share of profits.
A managed investment scheme	A common classification for arrangements where contributions are pooled in a common enterprise to generate financial benefits for members who lack day-to-day control.

Mapping Tokens to Legal Categories

The Managed Investment Scheme (MIS) Pathway

A crypto asset may be classified as an interest in a managed investment scheme, which is one of the most common regulatory pathways for digital asset products. Under section 9 of the Corporations Act 2001 (Cth), an arrangement is typically considered an MIS if it meets a three-part test:

MIS Test Component	Condition
Contribution	Individuals contribute money or assets to acquire rights to the benefits produced by the scheme.
Common Enterprise	These contributions are pooled or used in a common enterprise to generate financial benefits.
Lack of Control	The members of the scheme do not have day-to-day control over its operation.

This definition frequently captures crypto products that involve pooled staking services, yield-bearing arrangements, or other common investment pools.

The Federal Court decision in Australian Securities and Investments Commission v Web3 Ventures Pty Ltd [2025] FCAFC 58 highlighted this risk, finding that a product that pooled client funds to generate returns managed by the company constituted an unregistered MIS. This case underscores that any token structure that mimics a collective investment or exposes users to managed financial risk is highly likely to fall under this classification.

The Derivative Pathway

A token can also be regulated as a derivative if it functions as a contract whose value is based on an underlying asset, rate, or index. The Corporations Act 2001 (Cth) defines a derivative as an arrangement that creates financial risk exposure based on changes in the value of something else, such as a commodity, currency, or another digital asset.

Crypto assets that function as self-executing contracts, like perpetual futures tokens or synthetic assets that track the price of another asset, are likely to be classified as derivatives.

However, the Corporations Act 2001 (Cth) provides a significant exemption for contracts related to the future provision of services. This distinction was central in Australian Securities and Investments Commission v Web3 Ventures Pty Ltd [2025] FCAFC 58, where one of the firm’s products was found not to be a derivative because the court determined it was a contract for future services rather than one based on financial risk exposure.

Security Pathway: Shares & Debentures

Some crypto assets may be classified as securities if they function like traditional shares or debentures. This pathway is triggered when a token confers rights typically associated with equity or debt instruments, bringing it under the financial product regime of the Corporations Act 2001 (Cth).

A token is likely to be considered a share if it provides the holder with:

Security Type	Defining Characteristic
Share	Provides the holder with ownership rights in the issuing entity.
Share	Confers voting rights in company decisions.
Share	Grants an entitlement to a share of profits, such as dividends.

Alternatively, a token may be classified as a debenture if it represents money deposited with or loaned to the issuer, creating a right to be repaid a debt.

The judgment in Australian Securities and Investments Commission v Finder Wallet Pty Ltd [2024] FCA 228 if upheld, may narrow this definition to situations where the funds are used as part of the issuer’s working capital, providing more clarity on when “earn” products cross into this regulated category.

NCP Facility Pathway for Stablecoins

Tokens designed primarily to facilitate payments are increasingly being classified as NCP facilities. This category is particularly relevant for stablecoins and wrapped tokens, which are often used as a medium of exchange or a store of value for transactions within the digital asset ecosystem.

An NCP facility is a system that enables payments to be made without using physical currency. ASIC’s updated guidance in Information Sheet 225 (INFO 225) explicitly includes non-interest-bearing stablecoins as examples of financial products that fall under this definition.

The court’s ruling in Australian Securities and Investments Commission v BPS Financial Pty Ltd [2025] FCAFC 74, which found that the Qoin Wallet constituted an NCP facility, further reinforces ASIC’s position on regulating crypto arrangements that function as payment systems.

A Practical Framework for Self-Assessment

Step-by-Step Self-Assessment Methodology

Founders and compliance teams should adopt a systematic methodology to evaluate their token’s legal standing. This structured review serves as a crucial initial assessment to isolate the token’s key features and promises against the core legal tests under the Corporations Act 2001 (Cth).

A systematic process for evaluating your token involves the following steps:

Step	Assessment Action
Step 1: The Basic Currency Test	Determine if the token is a pure digital currency (e.g., native Bitcoin). If not, proceed to the next step.
Step 2: The Pooling Test (MIS)	Assess if client funds are pooled and returns depend on the issuer’s management. A “yes” indicates a high risk of being an MIS.
Step 3: The Risk Transfer Test (Derivative)	Consider if the token creates or transfers financial risk based on an underlying asset’s price movements. If so, it is likely a derivative.
Step 4: The Security Test (Rights)	Examine if the token confers rights like voting, profit sharing, or represents a debt. A “yes” suggests it is a share or debenture.
Step 5: The Payment Test (Stablecoin)	Evaluate if the token is pegged to a fiat currency and used for payments. If so, it is likely an NCP facility.

Using a Decision Tree for Classification

A decision tree or flowchart can be a valuable self-assessment tool to help you quickly analyse what type of token you are dealing with. This visual guide maps a token’s features against a series of questions that lead to a likely regulatory classification, helping to identify simple, unregulated tokens from those that are considered a financial product.

Using this model involves answering a sequence of questions about your token’s primary function and the rights it confers. The process begins with fundamental questions:

• Does the token grant holders rights to profits, dividends, or governance in a business? A “yes” suggests it is likely a share.
• If not, are contributions from participants pooled in a common enterprise where holders lack day-to-day control? A “yes” here points towards an MIS.

The decision tree continues with additional classification questions:

• Does the token’s value depend on an underlying price or index? This would indicate a derivative.
• Does it represent an undertaking to repay money lent to the issuer? This could make it a debenture.
• Is the token primarily used for making non-cash payments? This would classify it as an NCP facility.

By following the branches based on your answers, you can arrive at a preliminary determination of your token’s regulatory status.

Key Australian Crypto Judgments & Their Impact

ASIC v Web3 Ventures (Block Earner)

The case of Australian Securities and Investments Commission v Web3 Ventures Pty Ltd [2025] FCAFC 58 has provided significant clarity on how crypto yield products are assessed under Australian law, a complex area where guidance from experienced AFSL lawyers is often essential. This landmark case involved two distinct products offered by Block Earner:

• The “Earner” Product: Initially found by the Federal Court to be an unregistered MIS because it involved pooling client funds to generate returns managed by the company.
• The “Access” Product: Initially ruled not to be a derivative but rather an exempt contract for the future provision of services.

However, this decision was later overturned on appeal. The Full Federal Court determined that the “Earner” product was:

• Not a Managed Investment Scheme
• Not a derivative
• Not a facility for making a financial investment under the Corporations Act 2001 (Cth)

The court’s reasoning highlighted that the specific contractual terms were decisive in this case. Users did not acquire rights to benefits produced by a common scheme, but rather had a contractual right to a return from Block Earner itself.

ASIC v Finder Wallet

In Australian Securities and Investments Commission v Finder Wallet Pty Ltd [2024] FCA 228 ASIC alleged that the “Finder Earn” product was a debenture. This classification is significant because debentures are a type of security requiring an AFSL. Typically, a debenture involves an undertaking to repay money that has been deposited with or loaned to a company.

The Federal Court dismissed ASIC’s case, finding that the Finder Earn product did not meet the legal definition of a debenture. This decision was subsequently upheld unanimously by the Full Federal Court on appeal.

The judgment suggested a narrower interpretation of what constitutes a debenture, potentially limiting this classification to products where the funds are used as part of the issuer’s working capital. This provides more clarity for crypto “earn” products in the Australian market.

ASIC v BPS Financial (Qoin)

The Federal Court’s decision in Australian Securities and Investments Commission v BPS Financial Pty Ltd [2025] FCAFC 74 reinforced ASIC’s regulatory stance on crypto arrangements that function as payment systems. ASIC commenced proceedings against BPS Financial, the issuer of the Qoin token, for:

• Engaging in unlicensed conduct
• Making misleading representations

The court ultimately found that the “Qoin Wallet” constituted an NCP facility under the Corporations Act 2001 (Cth). This ruling confirms that digital asset wallets and similar platforms that enable users to make payments without physical currency can be classified as financial products, thereby requiring the provider to hold an AFSL.

Conclusion

Determining if a crypto asset is a financial product in Australia depends on its economic function and the rights it confers, which dictates the need for an AFSL under the Corporations Act 2001 (Cth). By understanding the key regulatory pathways, such as managed investment schemes or derivatives, and applying a structured self-assessment, founders can proactively navigate their compliance obligations.

Navigating this complex regulatory environment requires specialised expertise to ensure your crypto project is compliant from the start. Contact the AFSL application experts at AFSL House for a consultation to leverage our trusted guidance and turn your regulatory challenges into strategic opportunities in the Australian digital asset market.

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