Block Earner, an Australian fintech company, is moving forward with its plans to launch a cryptocurrency-backed loan product despite facing legal action from the country’s financial regulator over alleged unlicensed financial product offerings. The forthcoming crypto loan product will enable Australian crypto investors to use their cryptocurrency holdings as collateral to secure cash loans. Notably, Coinbase once offered a similar service to its U.S. customers but discontinued it in May of this year.
Block Earner is set to initiate the rollout of its crypto-backed loan product by the end of September, initially allowing loans using Bitcoin as collateral. The company has taken a cautious approach in designing the new loan products to align them with existing licensing models, aiming to ensure compliance with Australian financial regulations.
The backstory to Block Earner’s cautious approach lies in a legal dispute with the Australian Securities and Investments Commission (ASIC). In November of the previous year, Block Earner was sued by ASIC for allegedly offering crypto-linked fixed-yield earning products without holding an Australian Financial Services (AFS) license.
Charlie Karaboga, co-founder of Block Earner, criticized ASIC for what he perceived as a lack of regulatory clarity. He argued that his company had invested significant time and resources in developing products that he believed adhered to ASIC’s guidelines, emphasizing the challenges faced by fintech companies in a regulatory environment that lacked clear-cut rules. Karaboga maintained that the regulatory landscape in Australia remained ambiguous, stating, “Our position remains the same. There is no clear regulation in Australia.”
Block Earner legal battles
However, he clarified that Block Earner had sought legal opinions and believed there were no sufficient regulations or licenses applicable to their offerings. Karaboga also suggested that ASIC’s actions against Block Earner and other crypto companies, such as Finder, were largely reactive, possibly influenced by the FTX cryptocurrency exchange’s crash in November.
In response to the regulatory scrutiny and legal action, Block Earner decided to close its “earn” products and fully reimbursed its users.
The company’s leadership appears to have learned from this experience and stated that the upcoming launch of the crypto-backed loan product aligns with Australian credit licensing regulations, reducing the risk of legal challenges.
James Coombes, head of business at Block Earner, explained the key difference between the previous “Earn” product and the new loan offering. While there was uncertainty regarding whether a license was needed for the “Earn” product, the new service clearly falls within the realm of requiring a license to provide consumer credit, which Block Earner has obtained.
Looking ahead, Karaboga anticipates that regulatory progress in other jurisdictions like Singapore, Hong Kong, and the United Kingdom will exert pressure on the Australian government to establish clearer regulations or risk losing market share in the growing crypto industry. He believes that Australian regulators are generally supportive of cryptocurrency innovation and intend to foster its development.
