The last year has seen a significant increase in news coverage and articles on cryptoassets, cryptocurrencies, utility tokens, non-fungible tokens (NFTs) and the metaverse. This is perhaps unsurprising as major corporations innovate to incorporate the block chain into their business models and offering. In the landscape of sparse regulation in this area, most countries are struggling to apply often decades of old laws to the technology and keep pace as it evolves and develops almost daily.
One area that is increasingly hard to ignore is the number of advertisements appearing for cryptocurrency and crypto-exchanges. Be it as sponsors for major sporting teams, pop ups on your computer or main stream tv or print adverts. The increased interest in the technology has also been accompanied by a growing trend for crypto currency scams. According to reports in The Times, the number of cryptocurrency scams reported to the FCA more than doubled between 2020 and 2021.
Against this backdrop, the more we question, how is crypto regulated? Are consumers protected?
Under anti-money laundering regulations, British crypto asset firms must be registered with the FCA, however cryptocurrencies, and most other cryptoassets are not currently regulated by the FCA and nor are they subject to any regulation beyond the registration requirements, including in relation to advertising. In January 2022 the Government announced plans to legislate and address misleading cryptoasset promotions, to ensure adverts are fair and clear. At the earliest, however, this legislation is not expected to come into force until 2023.
As a result, and until regulation is introduced by the FCA or other authorities, the advertising of cryptoassets – unlike financial products within the FCA’s remit – remains subject only to the general requirements of the advertising codes implemented by the Advertising Standards Authority (ASA) under the CAP Code (covering non-broadcast ads) and the BCAP Code (covering TV and radio advertising).
Following the Government’s announcement in February 2022, the ASA published online guidance aimed at the advertising of cryptoassets. The preface stated: ‘Because of the risks and complexities involved, advertisers of cryptoassets must take particular care to ensure they do not mislead consumers and are not socially irresponsible in the way they promote them.’ The ASA guidance advises that:
Advertisers must clearly state that cryptoassets are not regulated by the FCA and are not protected by financial compensation schemes.
Ads must allow for the financial products to be understood easily by the audience being addressed. Advertisers must consider the setting and reach of their adverts and adjust the jargon used accordingly.
The volatility of cryptocurrencies must be explained in any advert along with the basis used to calculate any projections and should not mislead anyone into thinking that past performance is a guide for future performance.
The ASA can require the removal of adverts which conflict with its rules and advice and can restrict advertising space, require future adverts to be pre vetted or refer those in breach to Ofcom or Trading Standards. Its powers are, however, less robust than those of other regulators: it is unable to issue fines or the threat of imprisonment. Businesses should, however, still be wary of the reputational damage that a public decision against them issued by the ASA could have.
Importantly, it is not only companies who are directly offering and advertising crypto who are at risk. Papa John’s pizza was criticised for an advertising campaign in which customers were offered free bitcoin when they purchased a pizza. Although no purchase of cryptocurrency was being made, the ASA felt that this promotion ‘took advantage of consumers’ inexperience or credulity and trivialised investment in cryptocurrency.’
As cryptocurrencies become more widely utilised, for example, Colorado has just announced that it will be the first US state to accept tax payments in cryptocurrency, it is becoming apparent that authorities are becoming increasingly aware of and interested in all things ‘crypto’. The ASA’s Papa John’s decision makes clear that any business considering moving with the crypto trend, such as within a promotion or strategic partnership, or as a payment method, should consider their advertising carefully. The ASA’s view is that a mere introduction to crypto may have adverse implications for consumers and this seems to be in line with the tone for legislation to come.
Consistent with our policy when giving comment and advice on a non-specific basis, we cannot assume legal responsibility for the accuracy of any particular statement. In the case of specific problems we recommend that professional advice be sought.