What is a 'financial product' and why do digital
currencies fall outside this definition?
In the Corporations Act 2001,
section 763A defines financial products as facilities through
which a person:
makes a financial investment;
manages financial risk; or
makes non-cash payments.
ASIC considered each of the above and found that virtual
currencies do not fall within this current definition of
'financial products'. This is for the following
digital currencies, similar to real property or bullion, are
not a facility through which a person makes a financial
digital currencies do not have the features of a facility which
manages financial risk, such as the ability to manage the financial
consequences of a particular circumstance or the fluctuation of
costs, and therefore do not fall within this element; and
digital currencies do not provide the holder any rights to make
payments using the currency or to redeem it for cash, and therefore
the ability of a person to use the currency is dependent on whether
the other party agrees to accept payment in that form. It is on
this basis that ASIC views it unlikely that a digital currency is a
facility through which a non-cash payment is made.
ASIC also concluded that digital currencies are not a currency
or money for the purposes of the Corporations Act, being
more akin to a commodity. ASIC's finding is consistent with the
view of the Australian Taxation Office (ATO) discussed below.
Furthermore, ASIC ruled that digital currencies are also not
financial products under the ASIC Act. This means that
general consumer protection provided by the Competition and
Consumer Act 2010 applies to digital currencies, rather than
the equivalent provided by the ASIC Act.
We also note that ASIC has suggested that facilities which are
related to digital currencies may be financial products. For
example, contracts for the purchase and sale of digital currency
that do not settle immediately may be a derivative – a type
of financial product.
Facilities associated with digital currencies
ASIC considered a wide range of digital currency businesses
– for some of these facilities, the use of digital currencies
may be financial products, while others are not. We have included a
few below (refer to ASIC's
submission for a fuller discussion):
Digital currency ATMs: ASIC found that ATMs
are not a financial product and the buying and selling of digital
currencies through an ATM does not involve the provision of a
Escrow facilities supporting trading
platforms: not a financial product according to ASIC.
Deferred settlement of a contract for purchase and sale
of digital currency: contracts for sale/purchase of
digital currency that are settled immediately are not financial
products. However, those which include a delay between agreeing the
price and the delivery of the digital currency would be a
derivative – a type of financial product.
Digital currency offerings by regulated financial
services providers: entities that are licenced to provide
financial services in Australia that have expanded their product
offerings to include digital currencies will be under the usual
obligations in the Corporations Act and ASIC Act
in regards to these products which are considered financial
products. For example, PayPal has announced that it will allow some
sellers to receive payments in the form of bitcoins – this
would be a non-cash payment facility arrangement.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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In the years following the global financial crisis of 2008 many Australian investors lost their life savings as financial products failed and the Australian Stock Exchange shed over 3,000 points.
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