As crypto-assets continue to gain prominence and garner media attention, they have similarly raised concerns from regulators who are keen to ensure consumers are adequately protected against the risks such investments may pose, which has sparked a number of developments in existing rules and standards to attempt to combat this.
The Advertising Standards Authority (‘ASA’) has put into action its recent statement, which designated the advertising of crypto-assets as a ‘red alert’ priority issue, through a series of Rulings on crypto-asset advertisements, which outline what it considers to be misleading or detrimental advertisements for consumers (the ‘Rulings’).
Through enforcement proceedings against seven different advertisers, the ASA has provided additional insight around how advertisements relating to crypto-assets can be compliant with the UK Code of Non-Broadcast Advertising and Direct & Promotional Marketing (the ‘CAP Code’). All of the advertisements involved were challenged by the ASA on the same grounds, being that the advertisements were:
- misleading because they failed to illustrate the risk of the investments; and/or
- irresponsible because they took advantage of consumers’ inexperience or credulity.
These were deemed to constitute breaches of the CAP Code rules, including breaches relating to:
- misleading advertising and ensuring consumers are not mislead through the advertiser omitting material (Rules 3.1 and 3.3);
- social responsibility and ensuring advertisements are prepared with a responsibility to consumers (Rule 1.3); and
- financial products and ensuring that the audience understands investments are variable and contain risk (Rules 14.1 and 14.4).
The Rulings focused on similar incidents within which advertisers had commented on the ease of use of their platforms, which the ASA noted also implied an element of simplicity towards the complex activity of trading crypto-assets, in turn taking advantage of inexperienced consumers. In particular, the Rulings focused on the fact that the advertisements did not outline the risks involved in investing, nor inform consumers of the tax implications and Capital Gains Tax that may be applicable to their investments.
Despite arguments from advertisers that their adverts looked to highlight the ease of use their platform provided, rather than imply any simplicity to the action of trading itself, the ASA has taken a firm approach, with all Rulings resulting in the advertisements being banned, accompanied by a warning against issuing similar adverts in the future. Similar arguments from advertisers noted that their adverts were intended to be short, snappy taglines aimed at attracting customers, who were then informed of the risks posed through investing in crypto-assets in the Terms and Conditions required to be signed in order to access the platform. However, the ASA noted that given the volatility and increased risk posed, this was not sufficient, outlining a clear message to advertisers that users must be sufficiently informed of the risks where advertisements contain any implication that investments will be simple or profitable.
The Rulings themselves look to be a targeted approach from the ASA to cover the broad range of crypto-asset adverts, including targeting advertisements from the main exchange platforms, to advertisements on YouTube videos and discount promotions on purchases from other service providers.
ASA Ruling on Payward Limited t/a Kraken (the ‘Kraken Ruling’)
The Kraken Ruling provides the best case study to demonstrate the ASA’s approach, as the advertisement in question went as far as to include a safety warning for consumers, yet was still deemed to be in breach of the CAP Code by the ASA. The 20 second advert for Kraken’s online cryptocurrency exchange outlined that individuals were able to buy cryptocurrency in minutes with as little as £10 and ‘build digital wealth’. However, the advertisement began with a 1 second warning to consumers that cryptocurrency was a highly volatile asset, that Kraken’s services were unregulated, and that individuals should seek advice from independent financial advisors before investing.
In response to the ASA challenge, Kraken argued that it had included a direct disclaimer within its advertisement warning of the risks involved in investing in crypto-assets. In particular, Kraken cited Financial Conduct Authority (‘FCA’) research that noted 78% of UK adults were aware of the existence of cryptocurrency and 96% of participants who knew of cryptocurrencies were aware they were unregulated. As a result, Kraken argued that the ASA claim that its advert was taking advantage of consumer inexperience was unfounded. In relation to the ASA’s arguments that Kraken had failed to adequately inform consumers of the tax implications their investments may have, Kraken noted that regulated investments are not required to include information in their advertisements of the potential tax implications, and that this was not mentioned in any guidance on advertising investments.
The ASA noted that, while a disclaimer was included, it only ran for 1 second of a 20 second advert, which was insufficient for consumers to fully understand the risks associated with investing in crypto-assets. As a result, it held that Kraken had been irresponsible in taking advantage of consumer’s inexperience, and misled them in failing to illustrate the risks involved. In addition, whilst the ASA accepted the arguments raised by Kraken that regulated investment products are not subject to the requirement of outlining the tax implications that may arise, it noted crypto-assets were a new and unregulated product and subsequently consumers would likely be unaware of the potential need to pay Capital Gains Tax. As a result, there was a responsibility on the advertiser to inform them of this risk.
The Rulings from the ASA contribute to a wider attempt from regulators generally to safeguard consumers against the risks posed from crypto-asset investments. As a result, advertisers will have to tread carefully when wording their adverts to ensure they do not fall foul of the CAP Code and ensure any suggestions of ease of use or potential gain as a result of using their platform are accompanied by the requisite warnings to investors of the risks that may be involved. Whilst the ASA has taken a strict stance on these advertisements for the time being, as crypto-assets themselves become subject to increased regulation, in particular through the work of the FCA to bring them within the scope of the financial promotions regime, it may relax its approach if risks to investors can be mitigated through enhanced regulation. However, such developments will only serve to increase the regulatory burden placed on advertisers seeking to promote crypto-assets.
Written by Isaac Bedi
"... there’s a real danger that people may be drawn in to invest life savings that they later lose based on poor understanding." Advertising Standards Authority, 23 November 2021