The UK advertising watchdog, the ASA, has published guidance on the application of the Advertising Code to cryptoassets, following on from several recent ASA rulings relating to cryptoassets (which we have discussed in a recent post).
The ASA acknowledges that the vast majority of cryptoassets are not currently regulated by the UK's financial authority, the FCA, and do not fall under the umbrella of financial compensation schemes. As such, the FCA currently does not exercise powers over advertising of most cryptoasset offerings in the UK.
The ASA notes the UK Government's plans to bring certain cryptoassets that are currently unregulated within FCA regulation (as discussed in our previous post). These changes are not expected to take effect before 2023. In the meantime, all unregulated cryptoassets will continue to be subject to the Advertising Code.
Following the date on which the FCA takes on responsibility for regulation most forms of cryptoassets the ASA will nevertheless continue to retain oversight of issues of responsibility across all forms of cryptoasset advertising.
Note that NFTs are excluded from the Government’s announced changes and will therefore remain under the remit of the Advertising Code for issues of both misleadingness and responsibility once the financial services regulatory changes have taken effect.
The ASA references the definition of cryptoassets as set out in section 14A(3)(a) of the Money Laundering Regulations i.e. "cryptographically secured digital representations of value or contractual rights that use some type of distributed ledger technology (DLT) and can be transferred, stored or traded electronically".
Key points for advertisers to note when promoting cryptoassets, including NFTs:
- Make clear that cryptoassets are unregulated and not protected - advertisers must clearly state that cryptoassets are not regulated by the FCA. Ads must also make clear that cryptoassets are not protected by financial compensation schemes, so that potential investors are aware that they would not be subject to protections afforded by these schemes. This statement must be presented in a sufficiently clear and prominent way, ensuring that it is legible and can be easily seen by consumers. By way of example, a risk warning that runs for one second at the beginning of a 20-second ad will not be sufficient.
- Do not take advantage of consumer' inexperience or credulity - code rule 14.1 states that financial products must be set out in a way that allows them to be understood easily by the audience being addressed. As cryptoassets are fairly new, and are unique, a lot of the terminology will be new to the majority of consumers and could well be confusing and therefore potentially misleading. Advertisers should not take advantage of consumers’ inexperience or credulity or trivialise investment in cryptocurrency. Ads which do not make clear that capital gains tax could be payable on profits from investing are considered to take advantage of consumers’ inexperience or credulity.
- Include all material information - in line with rule 3.3, ads must not mislead consumers by omitting material information. Material information would include the fact that the tokens being offered are a cryptoasset or that to buy tokens you have to first purchase another cryptocurrency.
- Make clear that value can go down as well as up - code rule 14.4 states that ads must make clear that the value of investments is variable and, unless guaranteed, can go down as well as up. Ads must include a statement making this sufficiently clear.
- State the basis used to calculate any projections or forecasts - sometimes ads will state forecasts or projections for returns consumers may be able to achieve. Code rule 14.3 states that the basis used to calculate any rate of interest, forecast or projection must be apparent immediately. The basis of any projection in ads must be made clear and the advertiser have adequate substantiation to support its claims.
- Make clear that past performance is not a guide for future performance - code rule 14.5 states that ads should make clear that past performance or experience does not necessarily give a guide for the future.
Cryptoassets are complex and volatile products that are also becoming increasingly popular and widespread in the UK. 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.