In a unanimous judgment delivered on 17 June 2026, the High Court of Australia held that the “Earner Product” offered by Web3 Ventures Pty Ltd (trading as Block Earner) was a “financial product” under Chapter 7 of the Corporations Act 2001 (Cth) (the Act), both as a facility through which a person makes a “financial investment” (s 763B) and as a “derivative” (s 761D).[1] Since Block Earner held no Australian financial services licence (AFSL) for the product, the decision restores its exposure to civil penalties for unlicensed conduct, with the penalty appeal remitted to the Full Federal Court.[2]
As a result of this decision, the message for fintech and crypto issuers is clear. Labelling a product as a loan, using terms like “Lend”, does not make it a loan, and dressing an investment in crypto clothing does not take it outside Chapter 7 of the Act. The High Court found that the substance of a product, not the labels, determines whether a product is a regulated financial product, and the Courts will look to that substance in making that determination.
Background
Between 17 March 2022 and 16 November 2022, Block Earner operated an online platform through which users could access the Earner Product (badged “Lend” in its Terms of Use).[3] The mechanics were simple. A user opened an account, transferred Australian dollars (AUD) into a bank account held in Block Earner’s own name, selected “Lend”, nominated an “Eligible Cryptocurrency” and an amount to invest, and accepted the Terms of Use (the Acquisition Steps).[4] Block Earner then “converted” the nominated AUD into the chosen cryptocurrency, which sat in a wallet to which only Block Earner held the private key.[5] Users earned a fixed return of up to 7% annualised percentage yield (APY), calculated and paid in cryptocurrency.[6] On exit, Block Earner “converted” the cryptocurrency (plus the APY earned) back into AUD at the prevailing exchange rate, less fees, meaning the AUD amount a user received back fluctuated with the market value of the cryptocurrency.[7]
Behind the scenes, Block Earner’s business model was to on-lend that cryptocurrency (with its own holdings) to third parties at higher rates, pocketing the margin between what it earned and the fixed APY it owed users – which it was obliged to pay regardless of what it actually earned.[8]
ASIC commenced proceedings, alleging the Earner Product was a financial product requiring an AFSL. At first instance, Jackman J agreed finding the Earner Product was a financial product (s763A) because it was a facility through which users made a financial investment (s 763B)). His Honour also held it was an unregistered managed investment scheme (s 601ED).[9]
On appeal, the Full Federal Court reversed the first instance decision on all fronts, holding that Block Earner used investors’ money to generate a return for itself, not “for” the investors, and that the product was neither a managed investment scheme nor a derivative.[10] ASIC appealed to the High Court on the financial investment and derivative points (abandoning the managed investment scheme argument).[11]
What the High Court decided
The Earner Product was a facility for making a “financial investment” (s 763B)
The Court first identified the relevant “facility” as the contractual arrangement constituted by the Terms of Use, issued when the user completed the “Acquisition Steps” of selecting “Lend”, nominating a cryptocurrency and an AUD amount, and accepting the Terms of Use.[12]
Critically, the user’s “contribution” was the AUD, not cryptocurrency. Despite the Terms of Use speaking of users “lending” cryptocurrency and holding “rights and title” to it, users never had any rights to any cryptocurrency. The cryptocurrency only came into the picture after the product was acquired, was held in Block Earner’s wallet, and all rights to it lay with Block Earner.[13] The Court pointedly described the labels “Lend” and “loan” as “inapposite” since no loan was ever made.[14]
The Court then rejected the Full Court’s central reasoning, that a return generated “for” Block Earner could not also be “for” investors. The Court found that reasoning rested on a false dichotomy as nothing in s 763B(a) requires the return to be only for the investor, stating at [48]:[15]
“In any profit-making investment business, the business uses the funds invested to generate a return both for it, and for its investors. Every provider of a financial product is looking to make a profit out of the venture”
The Court reasoned that since Block Earner used (and intended to use) users’ AUD to generate the APY for users and a margin for itself, it follows that both limbs of s 763B(a)(i) and (iii) were satisfied.[16] This conclusion was reinforced by the Court’s examination of the Explanatory Memorandum to the Financial Services Reform Bill 2001 (Cth)[17], which confirmed the definition under the Act was intended to capture even ordinary interest-bearing deposit accounts which the Earner Product closely resembled, similar to how banks pool and on-lend deposits to fund the interest they pay.[18]
The Court also dismissed Block Earner’s argument that s 763B requires a “nexus” giving the investor some right or interest (“skin in the game”) in the issuer’s downstream activities. The Court found that the text of s 763B(a)(iii) expressly applies “even if no return or benefit is in fact generated” and held that to interpret this section to the contrary would improperly read the broad general definition down to something akin to a managed investment scheme.[19] A fixed, guaranteed return does not stop a product from being a financial investment.
The Earner Product was also a “derivative” (s 761D)
The second aspect of the appeal concerned whether the Earner Product was a derivative. Before the High Court, only s 761D(1)(c) of the Act was in dispute, being whether the amount of consideration was “ultimately determined, derived from or varies by reference to” the value of something else.[20] The High Court held it was. The AUD a user was entitled to receive at the end of the term depended on the market value of the Eligible Cryptocurrency in USD and the USD/AUD exchange rate at that time.[21]
Block Earner’s attempt to hive off the AUD/cryptocurrency “conversion” as a separate “Exchange service” arrangement was not accepted. The legal relationship constituting the product was formed on completion of the Acquisition Steps, before any conversion occurred, and the conversions in and out were mandated by the Terms of Use as part of a single arrangement.[22] Six users who transferred their own cryptocurrency directly were considered to be mere ad hoc variations that could not alter the terms of the product.[23] The Court determined that even if the Exchange service were a distinct arrangement, the parties plainly regarded the arrangements as a single scheme, so s 761B would aggregate them anyway.[24]
Two exclusion arguments brought by Block Earner also fell away. The Court held the “credit facility” exclusion could not apply because, by definition in reg 7.1.06(1)(a)(iv), a credit facility must not be a financial product under s 763A(1)(a), which the Earner Product was.[25] Nor was the product a “contract for the future provision of services” under s 761D(3)(b). Looking at substance rather than incidental services, the object of the contract was the provision of a return in AUD, of which the exchange merely formed part.[26]
Key takeaways
The High Court’s decision has the potential to reach deep into the crypto and fintech sector. In light of the Court’s decision, a technology-neutral, function-based definition of “financial product” should be adopted. Fundamentally, if a product takes customers’ money and promises them a return, the safest working assumption is that it is a regulated product irrespective of how it is described in any terms of service or terms of use.
Key takeaways include:
[1] At [10].
[2] At [75].
[3] At [2].
[4] At [3], [22] to [24].
[5] At [25] to [26].
[6] At [3], [27].
[7] At [4], [29].
[8] At [30].
[9] At [7]
[10] At [8], [34].
[11] At [9].
[12] At [40] to [41].
[13] At [21], [26], [42] to [44].
[14] At [21], [52].
[15] At [48].
[16] At [45] to [47].
[17] Australia, Senate, Financial Services Reform Bill 2001, Revised Explanatory Memorandum at 36 [6.58].
[18] At [49].
[19] At [53] to [55].
[20] At [61].
[21] At [68].
[22] At [66] to [69]
[23] At [70].
[24] At [71].
[25] At [58] to [60].
[26] At [72] to [73].
[27] At [21], [26], [44].
[28] At [48].
[29] At [49].
[30] At [53] to [55].
[31] At [67] to [71].
[32] At [63], [68].
