Clifford Chance

On 15 December 2021 the UK advertising regulator, the Advertising Standards Authority (the ASA), published seven rulings relating to the marketing of cryptocurrencies. This was followed by detailed guidance in February 2022. These effectively tighten the restrictions on advertising cryptocurrencies by introducing new requirements to protect consumers.

This article looks at the key takeaways from the rulings and analyses the new requirements for crypto-advertising that appear to go beyond the ASA's codes and other regulations.

Background

In the UK, cryptocurrencies themselves are not regulated by the UK financial regulator, the Financial Conduct Authority (the FCA), save where they are traded on existing regulated platforms (although this may soon change, as considered here). As such, the ASA has been one of the only UK regulators with powers to protect consumers in connection with the marketing and commercialisation of cryptocurrencies. The ASA is a non-governmental and self-regulatory body and therefore has limited statutory powers. For example, it cannot issue fines or sentences of imprisonment. However, partly because of this self-regulation, it has a broad remit to interpret and re-invent its rules to deal with new challenges. Moreover, there are a number of non-statutory sanctions that it can impose that can cause significant reputational damage, including the 'naming and shaming' of companies that are non-compliant with its codes and rulings. It is therefore critical that businesses take the time to obtain appropriate legal advice and implement measures to comply with the ASA's codes and rulings prior to launching any marketing campaigns in order to avoid any adverse consequences.

The ASA initially provided general guidance relating to cryptocurrencies in December 2020 (ASA statement on Cryptocurrencies, 9 December 2020), supplementing its rules on financial products and services. In 2021, the ASA designated cryptoasset advertising as a "red flag" priority. Then, following its rulings, the ASA published more detailed non-binding guidance (Cryptoassets, 14 February 2022). With these new rulings and guidance, the ASA has now provided more detailed guidance on how cryptoassets should be advertised in the UK.

The Advertising Codes: rules relevant to cryptoasset advertising

Advertising in the UK is regulated through the BCAP Code (the Broadcast Code which covers ads on TV and radio) and the CAP Code (the Non-broadcast Code which covers other ads, including online ads). The most recent and significant rulings have all been under the CAP Code.

The main provisions of the CAP Code specifically relevant for crypto-advertising are the following:

Rule 14.1 "Offers of financial products must be set out in a way that allows them to be understood easily by the audience being addressed. Marketers must ensure that they do not take advantage of consumers' inexperience or credulity."

Rule 14.4 "Marketing communications must make clear that the value of investments is variable and, unless guaranteed, can go down as well as up. If the value of the investment is guaranteed, the marketing communication must explain the guarantee."

In addition, the ASA has also relied on general rules such as: social responsibility (Rule 1.3), restrictions on materially misleading consumers (Rule 3.1), restrictions on materially misleading by omitting material information or presenting information in an unclear, unintelligible, ambiguous or untimely manner (Rule 3.3), and the requirement to state significant limitations and qualifications (Rule 3.9).

There are also a couple of specific rules which have sometimes been relevant for certain cryptoasset ads: Rule 14.3 that "the basis used to calculate any rate of interest, forecast or projection must be apparent immediately" and Rule 14.5 that "past performance or experience does not necessarily give a guide for the future".

The Rulings

Seven rulings were published by the ASA on 15 December 2021, with four more published in the subsequent months to 2 March 2022. The advertisements in question ranged from advertising on a digital video poster to a wide variety of online advertisements, including paid advertising on a YouTube video and a description in a company's Twitter bio. The advertisements concerned a wide variety of cryptoassets including cryptocurrencies, "fan tokens" purchased with cryptocurrency and cashback provided in cryptocurrency.

General points

An analysis of the ASA rulings and guidance highlights some general rules which should be adhered to by businesses when advertising cryptoassets in the UK or to UK consumers. These all relate to the ASA's primary concern that consumers lack the technical knowledge to make informed decisions with regards to investing in cryptocurrencies and that advertisements may therefore be taking advantage of the consumers' credulity and inexperience.

In light of the above, businesses operating in the cryptocurrencies market should adopt appropriate policies and processes to ensure that their advertisements are compliant with the most up-to-date rules and guidelines.

For example, the ASA's 14 February 2022 guidance includes the following:

• make clear that the value of investments in cryptocurrency are variable and could go down as well as up
• make clear that cryptoassets are unregulated (even if true to a certain extent, stating that a company or a cryptocurrency is "regulated" may imply to consumers that cryptoassets are regulated in the same way as other financial products)
• do not take advantage of consumers' inexperience or credulity
• include all material information (e.g. references to "tokens" must refer to the fact that they are, in fact, cryptoassets)
• state the basis used to calculate any projections or forecasts
• make clear that past performance is not a guide for future performance (e.g. encouraging consumers to invest by stating that Bitcoin has risen by x% in the past could be misleading).

Furthermore, the following points also arise from the recent rulings:

• do not compare cryptoassets to more established forms of investment (such as ISAs and savings accounts)
• avoid jargon
• do not imply that cryptocurrency investment is straightforward or accessible to everyone (e.g. references to it being quick and easy without requisite qualifiers)
• have adequate substantiation to support claims
• provide the basis for any projection
• do not trivialise investment in cryptocurrency (e.g. through cartoon images or memes)
• make clear any fees, expenses, additional costs, subscriptions or terms (if applicable).

Capital Gains Tax (CGT)

The majority of the recent ASA rulings reprimanded companies for failing to flag that CGT must be paid on profits arising from investing in cryptocurrency exceeding the annual CGT allowance (£12,300 as of March 2022). Interestingly, this new requirement was not previously included in the ASA advice on crypto-advertising, does not arise out of any specific regulation, and had not previously been mentioned in any public ASA ruling relating to cryptoassets or other financial products.

The ASA considered that the potential CGT consequences should be made clear to consumers regardless of the following:

• relevant tax information being included on the company's website or terms of use
• the fact that there was no regulatory basis for this information to be included
• the fact that an advertiser may not wish to provide tax advice
• constraints on the length of the advertisement 
• whether an advertisement also targeted consumers outside of the UK
• the fact that no traditional financial product advertising included information about CGT and therefore cryptoassets were counter-intuitively being held to a higher standard than regulated products
• the fact that most customers would purchase cryptocurrencies to hold them and therefore would not trigger CGT
• the fact that consumers were unlikely to trade in sufficient volume to exceed their personal allowance.

Consequently, businesses should take measures to ensure that they comply with the new requirement to expressly flag to consumers the fact that CGT is payable on profits arising from investment in cryptocurrencies.

Warnings

The rulings and guidance also considered the extent to which warnings need to be clearly signposted in advertisements for cryptocurrencies. The ASA's cryptoasset guidance now indicates that, in particular, the statement that cryptoassets are unregulated and not protected should be "presented in a sufficiently clear and prominent way, ensuring that it is legible and can be easily seen by consumers. When considering whether this information is sufficiently clear the ASA are likely to consider the size and legibility of the text, its positioning in the ad, and the nature of the medium".

Furthermore from the rulings, it is clear that, for example, lack of space is unlikely to be a sufficient excuse for the absence of or failure to include sufficient information or to place warnings in unclear or poorly visible positions on the advertisement. Furthermore, merely including small-print, a brief warning in a video or links to warnings on a company's website are unlikely to constitute requisite warnings. It appears likely therefore that advertisements for cryptoassets should include extensive and clear warnings to avoid leading to a negative ruling from the ASA.

Cashback

An increasing trend is for companies to offer cashback via cryptocurrencies (even if the product being sold is in no way related to cryptoassets). These are often redeemed by the consumer by signing up to a crypto-exchange platform. The ASA has ruled that offers for cashback may provide a strong incentive for consumers to invest in cryptocurrency. The mere act of redeeming a cashback offer by opening a crypto exchange account requires careful thought and consideration and, without sufficient warnings, such offers may take advantage of consumers' inexperience and may trivialise and distract from the serious and potentially costly financial decision of investing in cryptoassets. As such, cashback offers (even if genuinely being provided for free) should include requisite warnings in much the same way as any other cryptoasset advertising. Further, any fees, costs or additional expenses (e.g. monthly subscription fees; early cancellation penalties; joining fees) should be made expressly clear to the consumer from the outset.   

Potential risks and sanctions

The sanctions imposed by ASA in connection with the recent rulings only included a requirement not to publish the relevant advertisement again in the form complained about and requirements for future advertisements (as set out above). If the relevant advertiser does not comply with the directed sanctions, the ASA may require them to pre-vet advertisements, restrict advertising space (including paid-for search advertisements) or refer them to Ofcom or Trading Standards. As explained above, the ASA may not issue fines or imprisonment, but the sanctions available may have serious consequences in the form of reputational damage which can have a long-lasting adverse effect on a business moving forwards.

What can companies do?

• Carefully consider how the ASA rulings impact their current and future advertising campaigns, noting the broad reach of different media.
• Utilise the ASA's Bespoke Copy Advice or speak to legal counsel about the CAP Code.
• Regularly review their advertising in light of the latest rulings, e.g. the new requirement to mention CGT.
• Co-operate with the ASA and take any action required by them to avoid potential sanctions.

FCA Consultation

Following the publication of the ASA rulings, the FCA published draft rules proposing restrictions on cryptoasset marketing in anticipation of future regulation. For a summary of the proposals and HM Treasury's response see our article: Are we still allowed to talk crypto?

Conclusion

The continued rise of cryptoassets and the rise of new unregulated products – such as non-fungible tokens (NFTs) – will likely lead to further rulings by the ASA addressing new concerns. One potential future issue may be cryptoassets being partially marketed to children, e.g. NFTs in video games. Such advertising could give rise to a host of potential regulatory issues as reviewed and assessed in detail in our recent guide 'Level Up: A Guide to the Video Games Industry'.  

As the FCA rules come into effect, it will be interesting to see how these rules overlap with the ASA's rules and whether there will be any conflict. It is possible that certain cryptoassets may not fall under the FCA promotion rules (such as NFTs) and therefore the ASA's rules may be a key tool to manage such advertising. Due to the importance of the mass consumer market for many companies advertising cryptoassets, the ASA is likely to continue its strict enforcement of the Codes. Expect more rulings in the coming months.