Advertising and cryptoassets

February 4, 2022
stocks on a screen

After a steady swell of interest over a number of years, cryptocurrencies are now well-established enough to be part of mainstream consciousness.  As consumers and businesses alike look to  invest in, or develop, digital assets, we consider the ASA’s guidance on how these products should be marketed to consumers.

Advertising compliance

There has been a recent run of Advertising Standards Agency (ASA) rulings that have tackled complaints about adverts for cryptocurrencies.  The ASA's statement, in November 2021, that the sector was a "red alert" priority has obviously now translated into increased scrutiny. [1] The ASA has also issued guidance on the topic which outlines the key obligations required from advertisers, which are as follows:

Clearly and prominently state that cryptocurrency is not regulated

Perhaps surprisingly, cryptocurrencies are not currently regulated by the Financial Conduct Authority (FCA). While the FCA has signalled that regulation will follow [2], for now, there is little or no protection for investors in cryptocurrencies which, as a result, represent high risk and volatile investments for consumers. 

The ASA has stated that advertisers should clearly state that the cryptocurrency being offered is not regulated, so that potential investors are aware that they will not have recourse to the protections of the Financial Ombudsman Service or the Financial Services Compensation Scheme.  Currently, many consumers believe that they have such protections.  Many adverts were investigated specifically on this point by the ASA towards the end of 2021, with the ASA upholding complaints that the unregulated nature of the investment was not made sufficiently clear. [3] 

Not to take advantage of consumers' inexperience or credulity

In accordance with Rule 14.1 of the CAP Code, financial products must be set out in a way which allows them to be understood by the audience being addressed.  Advertisers must not take advantage of consumers' inexperience or credulity.  In a number of recent rulings, including against eToro (a trading platform) and Arsenal Football Club, the ASA held that adverts for cryptocurrencies should make it clear that Capital Gains Tax is payable on profits received from investing in cryptocurrencies. [4] Papa John's' offering of free Bitcoin with the purchase of pizza also attracted criticism from the ASA on the basis that it trivialised the opening of a cryptocurrency account, which is a "serious and potentially costly financial decision". [5]

Include all material information to enable consumers to make informed decisions

It is a well-established principle that ads must not mislead consumers (for example by omitting material information). [6] However, the ASA has recently ruled on a number of cryptocurrency adverts which have failed to comply with this standard.  In upholding a complaint about an advert for Arsenal Football Club's "Fan Tokens", the ASA considered that consumers were unlikely to understand that it referred to cryptoassets.  The material information that the tokens were a cryptoasset to be exchanged with another cryptocurrency was not included in the ad, leading the ASA to find that the ad was misleading. [7] 

Make it clear that the value of investments can go down as well as up

The guidance from the ASA draws out the volatile nature of investments in cryptoassets; with the opportunity for significant increases in value comes the risk of severe losses in capital.  Deriving from Rule 14.4 of the CAP Code, adverts must clearly inform consumers that the value of the investment is variable and can go down as well as up.  Again, the ASA has upheld a number of complaints where it found that advertisers had not made this point clear enough to consumers, leaving them insufficiently aware of the risk to their capital.  

State the basis on which any projections or forecasts are calculated

Where an advert sets out particular forecasts or projections on returns that may be achieved, Rule 14.3 of the CAP Code requires the basis used to calculate them to be immediately apparent.  Earlier this year, an advert for Forisgfs UK t/a Crypto.com, that claimed customers could "Earn up to 8.5%", was held to be misleading by the ASA because it did not make it clear that such a rate of return depended on the type of cryptocurrency, the amount transferred or the period for which it was held.  In addition, the ASA stated it had not seen any evidence to substantiate that 8.5% per year would be paid. [8]

Clarify that past performance is not a guide for future performance

In another application of Rule 14 (Financial Products) of the CAP Code, the ASA upheld a complaint against an ad by Coinbase which stated that "£5 in Bitcoin in 2010 would be worth over £100,000 in January 2021.  Don’t miss out on the next decade…". [9]  The ASA concluded that the statement was in breach of Rule 14.5 which obliges advertisers to make it clear that past performance or experience is not necessarily an indication for future performance.  They were concerned that consumers would understand the advert, in the absence of any information to say it was not representative, to mean that there was a guaranteed return on investment with a similar rate of appreciation.

What next for advertisers?

If the trend in the ASA's recent activity on cryptoasset adverts can be extrapolated as a guide for future enforcement, it's clear the ASA will continue to monitor the space carefully to ensure that the inexperience of consumers is not exploited.  Certainly, until there is increased regulation in the sector (which is likely), the ASA will be looking to apply its existing rules to protect consumers.  In the meantime, the recent rulings should provide clarity for advertisers and improve responsible advertising for these high-risk investments.

Caroline CopelandCaroline Copeland
Caroline Copeland
Caroline Copeland
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Partner
Andrew WilsonAndrew Wilson
Andrew Wilson
Andrew Wilson
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Associate
Sarah LovewellSarah Lovewell
Sarah Lovewell
Sarah Lovewell
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Associate

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