On 14th of February 2022, the Committee of Advertising Practice (CAP) Executive published it advice on non-broadcast advertising of cryptoassets.
Because of cryptoassets’ inherent volatility and complexity, it has become important that the public, and consumers, are not misled and taken advantage of when making choices about whether or not to get involved in cryptocurrencies, non-fungible tokens (NFTs) or utility tokens.
Although defined by the FCA as “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, the CAP reminds us that what we often call cryptoassets is, in fact, an umbrella term designating a whole range of different products.
The CAP advice focuses on the following three products:
(1) Cryptocurrencies
(2) Utility tokens
(3) Non-fungible tokens (NFTs)
It also highlights six distinct ‘best practice’ avenues that advertisers and marketers should consider when advertising cryptoassets online, namely that they
(1) should make clear that cryptoassets are unregulated and not protected; and
(2) do not take advantage of consumers’ inexperience or credulity; and
(3) Include all material information; and
(4) Make clear that value can go down as well as up; and
(5) State the basis used to calculate any projections or forecasts; and
(6) Make clear that past performance is not a guide for future performance.
Before we explain the above, it is worth pointing out that cryptoassets are neither regulated by the FCA nor do they fall within the ambit of the Financial Services Compensation Scheme (FSCS) or the Financial Ombudsman Service (FOS), which can provide financial redress for wronged consumers.
Also, retail consumers cannot trade cryptoassets when sold on regulated platforms such as in contracts for differences, options, and futures.
We will now consider each of the CAP’s ’best practice’ avenues, as follow:
(1) Making clear that cryptoassets are unregulated and not protected: The plethora of advertisements investigated by the ASA in 2021 (Skrill Ltd; Exmo Exchange Ltd; eToro Ltd; Coinbase Europe Ltd t/a Coinbase, among others…) shows that advertisers must ensure that their ads for cryptocurrencies contain the right disclaimer. The first step for marketers and advertisers is therefore to highlight that the product is neither protected or regulated by the FCA, and secondly, that they should ensure such statement is sufficiently clear and prominent.
Size, legibility, positioning and nature of the medium are the criteria most likely to come into play when assessing the clarity and prominence of an ad. Time and brevity of the ad are also to be taken into consideration (Payward Ltd t/a Kraken).
(2) Advertisers should not take advantage of consumers’ inexperience/credulity: This advice is in line with code rule 14.1 which provides that marketers must ensure that advertised financial products need to be easily understood by consumers. Accordingly, the terminology used will significantly differ depending on where the ad is placed. For example, the CAP makes a distinction between an ad in an untargeted medium (e.g. those found in public transports) or in a specialist publication. Technical jargon will be allowed in the later whereas ads found in an untargeted medium will have to be significantly clearer and more easily approachable. (see Papa John’s (GB) Ltd t/a Papa John’s Pizza and HDR Global Trading)
(3) Advertisers must include all material information In line with Section 3 of the CAP Code: Adverts may be considered misleading where material information is omitted (rule 3.3. CAP Code). In Arsenal Football Club Plc, the ASA found that an ad for Fan Tokens omitted to mention that those tokens were in fact cryptoassets, and the ad failed to inform consumers that they had to purchase crypto first before getting access to the Fan Tokens advertised.
(4) Marketers should make clear that the value can go down as well up: As with any financial product and investment, a disclaimer informing consumers that their capital is at risk is a central tenet of good and consumer-oriented advertising. In line with rule 14.4., it must be made clear that the value of investments can go down as well up.
(5) State the basis used to calculate any projections or forecasts; Where a forecast or projections for returns are advertised, rule 14.3. will apply. This means that the calculation basis for any such projection must be clarified and substantiated. The consumer should be able to distinguish and clearly understand the basis on which the calculation was made (Forisgfs UK Ltd t/a Crypto).
(6) Make clear that past performance is not a guide for future performance. Again, best practice and common sense apply where advertising cryptoassets. Ads should contain a disclaimer that makes clear that past performance is not indicative of future results. For example, in Coinbase Europe Ltd t/a Coinbase, the ASA found that ‘…£5 in #Bitcoin in 2010 would be worth over £100,000 in January 2021. Don’t miss out on the next decade…’ was misleading.
Due to this high level of scrutiny, the government will be introducing new rules aiming at protecting consumers from misleading claims, which will be then regulated by the FCA. It is expected that such rules will come into force during the course of 2023. Until then, the Advertising Code applies, and the ASA will be the body reviewing possible breaches. Watch this space.
