Who: The Advertising Standards Authority (ASA)
Where: United Kingdom
When: 10 March 2022
Law stated as at: 8 April 2022
The ASA issued an enforcement notice to more than 50 companies that advertise cryptocurrencies, instructing them to immediately review their advertising by 2 May 2022 or face the risk of targeted monitoring and potential sanctions. This follows several ASA rulings in December 2021 against numerous cryptocurrency ads in which the advertising regulator took a strong position and released updated online guidance and a statement on cryptocurrency advertising setting out that this is one of its “red alert” priority issues. Similarly, the Treasury announced it intended to strengthen rules on crypto-asset advertisements and to protect consumers from misleading claims.
Given the spate of cryptocurrency rulings, guidance and uncertainty around crypto-asset regulation, this is a continuously developing area. But there are some lessons to be learned from the latest ASA enforcement notice and rulings, which crypto advertisers would do well to bear in mind when advertising their products.
Enforcement action in 2021: the ASA’s objections
The ASA followed its red alert with rulings in relation to several cryptocurrency companies that shed light on previously unexplored areas of crypto advertising, including:
- promotions that encourage consumers to open crypto-exchange accounts;
- references to capital-gains tax implications on investment gains; and
- the ASA’s views on utility tokens.
Although there were unique aspects to each of the rulings, there are a few common themes, notably that the ASA felt that:
- insufficient information was being provided regarding the risk of investing in cryptocurrencies, particularly in terms of the content and display of disclaimers;
- many of the ads downplayed the complexity or risk of investing in crypto-assets;
- certain ads sought to take advantage of consumers’ inexperience or incredulity; and
- some of the ads it considered were irresponsible, for example by creating a sense of urgency to invest.
The fact that the ASA is willing to make an example out of large players in the crypto industry in order to form the basis of official guidance means that they are less willing to resolve informally crypto-related complaints. Accordingly, any rulings in this area are likely to be made public, increasing the reputational risk for advertisers.
Enforcement Notice – advertising of cryptocurrencies
Building on the recent ASA rulings, an enforcement notice was issued on 22 March 2022 to more than 50 companies advertising cryptocurrencies, crypto exchanges and ads or promotions that involve the transfer, sale or supply of cryptocurrencies. ASA has warned that advertisers who do not implement its guidance by 2 May 2022 will face potential sanctions.
The enforcement notice lays out the qualifications advertisers must abide by, as follows:
- All ads must expressly and prominently state that cryptocurrencies are unregulated in the UK. Furthermore, all ads must clearly state that cryptocurrency profits may be subject to Capital Gains Tax and that the value of investments is variable and can go down as well as up.
- Qualifications must be presented clearly for the medium. Advertisements through websites should ensure qualifications are presented clearly above the fold as presentation of a qualification at the bottom of the webpage would likely be deemed insufficient. Similarly when looking at digital posters, advertisers may opt to place them in a static box to ensure that qualifications are visible.
- Any claims for rates must be representative, supported by documentary evidence, and clarify how the rate is calculated and what significant conditions apply.
- For media that is significantly limited by time and space, such as some social media platforms, advertisers are expected to do all they can to include all significant conditions in an ad. Where ads are unable to do so, advertisers must question whether the medium is at all capable of hosting compliant ads.
- Advertisers must be aware that qualification cannot override the overall impression of an ad, This was made clear in a recent ruling whereby an ad that suggested that “Bitcoin is digital gold” and that ‘[t]here is no point in keeping your money in the bank‘ was deemed misleading even though a qualification appeared in small print at the bottom of the ad. The ASA found that the ad did not make sufficiently clear that the value of Bitcoin could go down as well as up and that the Bitcoin market was unregulated in the UK.
The enforcement notice further sets out prohibitions that have been established by the ASA as misleading and irresponsible due to them trivialising investment in cryptocurrency or the likelihood of consumers’ inexperience or credulity being taken advantage of.
Ads must not imply:
- Cryptocurrency products or services are regulated (for example, by the Financial Conduct Authority (FCA).
- Past performance of investments necessarily give a guide for the future or guarantee a future income.
- Investments are safe or low risk or that returns are guaranteed.
- There is an urgency to buy or create a fear of missing out.
- Investment decisions are trivial, simple, easy or suitable for anyone.
- Cryptocurrencies are suitable for purchase on credit.
The ASA have made it clear that they will work closely with the FCA to take action against those who appear unable or unwilling to abide by the rules. Sara Pritchard, executive director of markets at the FCA, said: “We will continue to work closely with the ASA to tackle unclear or misleading crypto advertising. People should be wary of any promotion promising high investment returns and do further research before investing, including through the FCA’s InvestSmart website. Crypto assets remain unregulated and those who invest in them should be prepared to lose all their money.”
In March 2022, the CAP Executive published updated guidance concerning non-broadcast advertising of cryptoassets. Due to the risks and complexities involved in cryptoassets, the guidance was updated to ensure advertisers take care to ensure that they do not mislead consumers and are not socially irresponsible in promoting them.
In line with its renewed focus on crypto advertising, CAP reminded advertisers of the importance of:
- Making clear that cryptoassets are unregulated and not protected.
- Not taking advantage of consumers’ inexperience or credulity.
- Including all material information.
- Making clear that value can go down as well as up.
- Stating the basis used to calculate any projections or forecasts.
- Making clear that past performance is not a guide for future performance.
Other regulatory action
The Treasury has recently announced its intention to legislate and address misleading promotions in the sector, with crypto-asset ads being brought in line with other financial advertising. The aim of this new regime is to ensure that crypto advertising is fair and clear, with rules introduced to increase consumer protection.
The FCA has also announced intentions to strengthen financial promotions rules for high-risk investments. Its January consultation paper, CP22/2, proposes that “qualifying cryptoassets” will be treated as “restricted mass market investments”, subject to restrictions on financial promotions rules under section 21 of the Financial Services and Markets Act 2000. The section 21 restriction will apply to any in-scope promotion capable of having an effect in the UK, even where it is communication by an overseas person. In practice, all promotions of investment activity relating to qualifying cryptoassets must be signed off by a section 21 approver and comply with Conduct of Business Sourcebook 4 rules. Furthermore, the FCA has proposed that specific risk warnings should be included when promoting cryptoassets, such as “don’t invest unless you’re prepared to lose all of your money”. Where the financial promotion is made via a website, app or other digital medium, the text “take two minutes to learn more” should be included with a link to an appropriate risk summary of the investment.
Why this matters:
While this regulatory action has provided some clarity around the ASA and FCA’s expectations of crypto advertising and highlighted that this is a priority for regulators, it has also confirmed that this is a complex and evolving area. The regulators have announced their intentions to carry out proactive monitoring and enforcement to tackle non-compliant ads, as well as generally reviewing their policies to ensure consumer protection. We recommend keeping a close eye on regulatory developments when it comes to crypto-assets, as advertisers could otherwise get caught out.