Best Interests Duty & Crypto Financial Advice

Part 7.7A, Corporations Act

If you're providing personal advice to a retail client (s 961(1)) about crypto tokens that are financial products, the best interests duty applies (s 961B).

The duty:

The provider must act in the best interests of the client in relation to the advice. The provider satisfies the duty if it proves it took each of the steps in s 961B(2) (often called the "safe harbour"): (a) Identify the objectives, financial situation and needs the client disclosed through their instructions (b) Identify the subject matter of the advice sought and the client's relevant circumstances (c) Where it is reasonably apparent the information is incomplete or inaccurate, make reasonable inquiries to get complete and accurate information (d) Assess whether the provider has the expertise to advise on the subject matter, and if not, decline to give the advice (e) If it would be reasonable to consider recommending a financial product, conduct a reasonable investigation into the financial products that might meet the client's relevant objectives and needs, and assess the information gathered (f) Base all judgements on the client's relevant circumstances (g) Take any other step that would reasonably be regarded as being in the client's best interests

Crypto complications:

What counts as a 'reasonable investigation' of a DeFi protocol?
What are the 'relevant circumstances' of a crypto-native client?
Competency: does the adviser understand smart contract risk?
How does the conflicted remuneration ban (s 963A definition; ss 963E–963L) apply to token incentives and airdrops?

Practical risk: Advice that does not meet s 961B can expose the licensee to civil penalties (s 961K; and s 961L for failing to take reasonable steps to ensure representatives comply), an authorised representative to civil penalties (s 961Q), and the licensee to compensation orders (s 961M).

Best Interests Duty & Crypto: Where Advisers Get Caught

These are the main issues.

The Core Problem

Section 961B was designed with traditional financial products in mind: managed funds, insurance, and securities with disclosure documents and track records. Crypto financial products test many of the assumptions built into the safe harbour steps.

Safe Harbour Steps Applied to Crypto

(a)–(c): Identify the client's instructions, subject matter and relevant circumstances

Relatively straightforward, but "relevant circumstances" for a crypto-native client may include:

Self-custody capability and risk tolerance

Understanding of protocol-level risks (smart contract exploits, oracle failures, governance attacks)
Exposure across multiple chains/protocols (not just portfolio allocation)
Tax position across jurisdictions (cross-border holdings are common)

An adviser who only asks about income, assets, and risk appetite may not be meeting s 961B(2)(b)–(c) for crypto clients, because the relevant circumstances can be materially different.

(d): Competency assessment

The adviser must assess whether they have the expertise required to advise on the subject matter. For crypto financial products, that means understanding:

Smart contract architecture and audit status
Tokenomics and emission schedules
Protocol governance mechanisms
Liquidity depth and withdrawal risk
Counterparty risk in "decentralised" protocols that aren't

If the adviser doesn't have that expertise, s 961B(2)(d) requires them to decline to give the advice.

(e): Reasonable investigation of financial products

This is the hardest step for DeFi. What does "reasonable investigation" look like here?

Traditional	Crypto Equivalent	Problem
PDS review	Whitepaper + docs	Often incomplete, outdated, or misleading
Fund manager track record	Protocol TVL + audit history	TVL is gameable; audits don't remove risk
ASIC registration check	None	Many crypto products aren't registered at all
Performance data	On-chain analytics	Requires dedicated tools and interpretation
Independent research reports	None	Sparse, often conflicted (paid by projects)

Our view: "Reasonable investigation" for a DeFi protocol requires, at minimum:

Smart contract audit review (read the findings, beyond checking that an audit exists)
Governance structure analysis (who controls upgrades, treasury, admin keys)

Liquidity and withdrawal risk assessment
Counterparty/bridge risk mapping
Regulatory status in AU and relevant jurisdictions (including whether the product or platform is covered by an AFS licence, and from 2027 whether it falls within the new digital asset platform regime)

An adviser who recommends a yield-bearing DeFi token based on APY and market cap alone is unlikely to have met s 961B(2)(e).

(f): Base judgements on client's relevant circumstances

Ties back to (b)–(c). The judgement must be grounded in the client's actual situation. Generic crypto enthusiasm or fear of missing out doesn't count.

Conflicted Remuneration (s 963A)

The ban on conflicted remuneration causes specific problems in crypto:

Token incentives/airdrops received by the adviser or their licensee for recommending a protocol: likely conflicted remuneration

Referral fees paid in tokens: same analysis as cash referral fees; the form doesn't change the substance
Staking/yield earned by the adviser on products they recommend: potential conflict requiring disclosure at minimum, possible ban breach
Volume-based fee tiers on exchanges: if the adviser routes through a specific exchange for better fees, that's a conflict

The test looks at function over form. Section 963A defines conflicted remuneration as "any benefit, whether monetary or non-monetary", given to a licensee or representative who provides financial product advice to retail clients, that could reasonably be expected to influence the advice or the choice of product. Payment in governance tokens instead of AUD makes no difference. If it could reasonably be expected to influence the advice, it is likely to be caught by Div 4 of Pt 7.7A.

Practical Risk Map

Risk	Likelihood	Consequence
Adviser recommends crypto product without adequate investigation	High	Civil penalty exposure (s 961K or s 961L for the licensee; s 961Q for an authorised representative) + compensation order (s 961M)
Adviser lacks competency but doesn't decline	High	Failure to satisfy s 961B(2)(d) + AFSL conditions
Token incentives not identified as conflicted remuneration	Medium-High	s 963E (licensee) or s 963G (authorised representative) contravention
"Relevant circumstances" not properly scoped for crypto client	Medium	Inappropriate advice claim (s 961G)

Bottom Line

The best interests duty does apply to personal advice to retail clients about crypto tokens that are financial products. INFO 225 points advisers to RG 175 (AFS licensing: Financial product advisers: Conduct and disclosure) for personal and general advice obligations, and the High Court's 2026 Block Earner decision confirms how broad the financial product definition is. The duty applies to crypto financial products in the same way as for any other financial product, and advice that does not reflect the s 961B(2) steps may not meet it.

Advisers operating in this space without deep protocol-level understanding are carrying significant enforcement and civil liability risk.

This is general information, not legal advice.

Questions? Email [email protected].

Sources

Corporations Act 2001 (Cth), current compilation (C2026C00432, compilation date 19 Sep 2026): https://www.legislation.gov.au/C2004A00818/latest
ASIC INFO 225, Digital assets: financial products and services (updated Oct 2025; minor edits Apr 2026): https://www.asic.gov.au/regulatory-resources/digital-transformation/digital-assets-financial-products-and-services
ASIC 26-124MR: ASIC successful in High Court Block Earner appeal: https://www.asic.gov.au/about-asic/news-centre/find-a-media-release/2026-releases/26-124mr-asic-successful-in-high-court-block-earner-appeal