The Revolution Will Not Be Televised - Regulators Crack Down On Crypto Advertising

January 20, 2022
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The UK, Spain and Singapore have all unveiled plans for strict rules on crypto advertisements within days of one another, with the Monetary Authority of Singapore proposing an outright ban.

The UK, Spain and Singapore have all unveiled plans for strict rules on crypto advertisements within days of one another, with the Monetary Authority of Singapore (MAS) proposing an outright ban.

It started with Singapore’s announcement on Monday, but by Tuesday, Spain and the UK were making the jump too and tackling what has become a thorny issue — crypto advertisements.

Starting with the UK

HM Treasury has unveiled plans to legislate by bringing adverts into line with other financial advertising, ensuring they are fair and clear.

This means the promotion of qualifying crypto-assets will be subject to Financial Conduct Authority (FCA) rules in line with the same high standards that other financial promotions such as stocks, shares and insurance products are held to.

“Crypto-assets can provide exciting new opportunities, offering people new ways to transact and invest, but it’s important that consumers are not being sold products with misleading claims,” said Rishi Sunak, chancellor of the exchequer in a statement.

Tighter compliance rules will be introduced via secondary legislation to amend the Financial Promotion Order, which sets out the investments and activities to which the financial promotion regime applies.

Under the Financial Services and Markets Act 2000, a business cannot promote a financial product unless they are authorised by the UK’s financial watchdogs — the FCA and the Prudential Regulation Authority — or the content of the promotion is approved by a firm which is.

Firms that wish to promote such investments and activities must comply with binding rules that financial promotions must be fair, clear and not misleading.

These rules will mean that the FCA has more power to regulate the market. On Wednesday (January 19), the regulator began a consultation on these new rules.

The FCA has long lobbied for better oversight of the market, with its outgoing chairperson having said that celebrity endorsements of crypto-assets on social media are a cause for concern.

So far, the new rules have garnered mixed reviews from experts in the crypto sphere.

"These proposed measures aimed at protecting consumers will enable the UK to cultivate a crypto sector that is safe, but also innovative,” said David Carlisle, government affairs chief at Elliptic, the London-based blockchain analysis provider. "Ultimately, innovation thrives where there is transparency and accountability, and where consumers can access new financial products with confidence and a clear understanding of the risks at play."

For Carlisle, the proposed approach is proportionate, placing the interests of consumers first but also creating a clear framework through which crypto-asset products can be advertised in a safe manner. “This will be a boon to UK efforts to innovate through growth of the fintech sector,” he predicted.

The changes are game-changing, according to Bradley Rice, a partner at Ashurst. "These changes will bring about monumental changes to how firms offer, promote and market crypto-assets in the UK or to persons in the UK.”

"There were only 25 respondents to the consultations. That's pretty shocking given the number of firms operating in this space and the impact of this regime,” he noted, adding that the regime will mean regulated firms are at an advantage over unregulated firms because they will be able to issue their own promotions.

In comparison, unregulated firms will need to find an authorised firm willing to approve their promotions.

"I'm not sure how many firms will be offering this service, or if the FCA will let them through the new Section 21 gateway. If providers do offer the service, it won't be cheap,” he cautioned, referring to the FCA’s rule that allows authorised firms to approve the financial promotions of unauthorised firms (including through a fee).

Spain's similar approach

On the continent, the Spanish authorities have taken similar measures, reining in the advertising of crypto-assets.

It has tasked the country’s financial supervisor, Comisión Nacional del Mercado de Valores (CNMV), with regulating the sector.

Spain’s national government said that advertisers and companies that market crypto-assets will have to inform the CNMV at least ten days in advance about the content of campaigns that target more than 100,000 people.

Providers will need to be compliant with these rules from mid-February and allow the CNMV to specifically monitor advertising for all types of crypto-assets, factoring in warnings about the risks of being involved in such investments.

The new regulation also applies to crypto-asset service providers when advertising their activities, as well as to anyone advertising individually, or as a spokesperson for a third party. As with the UK, this includes social media influencers.

The government has said that influencers with more than 100,000 subscribers who are paid to advertise and promote crypto-assets will have to pre-notify the CNMV.

“In 2022, we expect regulators will finally make a decision on how to regulate crypto. There will be different approaches. Some will rock the market, some will try to promote it,” said Rice, referring to these initiatives as the “great crypto clampdown”.

One thing is certain, there is a lot of change on the horizon, according to Rice. “There will be some winners and some losers, but more regulatory and legal certainty will see new players enter the market, including incumbent financial services firms.”

"Consumer protection will be at the heart of many of these regulatory approaches. Spain will not be the first to take action against misleading promotions, and it will certainly not be the last,” he predicted.

Singapore takes a hard line

Singapore’s regulator took the most extreme action, with the MAS effectively banning what it regards as digital payment tokens (DPT or cryptocurrency) service providers from promoting their crypto services to the general public in the city-state.

“While measures aimed at protecting consumers are important, MAS’ guidance represents a drastic approach,” said Carlisle. “Singapore has long positioned itself as a fintech-friendly hub that is welcome to innovative businesses, so it is hard to square this guidance with those previous statements."

The new guidelines clarify that DPT service providers should not engage in marketing or advertising of DPT services in public areas in Singapore, such as through advertisements on public transport, public transport venues, public websites, social media platforms, broadcast and print media or through ATMs.

Engagement via third parties, such as social media influencers, to promote DPT services is also prohibited.

Service providers can only market or advertise on their own corporate websites, mobile applications or official social media accounts.

For Carlisle, these measures will make it extremely difficult for retail exchange services in Singapore to remain competitive, and could even lead some to reassess their decision to do business in the city-state. “Hopefully there will be space and opportunity for the crypto industry and regulators in Singapore to discuss these measures and determine if there is a way to strike more of a balance that both protects consumers and enables local businesses to be competitive,” he said.

“MAS strongly encourages the development of blockchain technology and innovative application of crypto tokens in value-adding use cases,” said Loo Siew Yee, assistant director for payments and financial crime at the MAS.

The trading of cryptocurrencies is highly risky and not suitable for the general public, she continued. “DPT service providers should therefore not portray the trading of DPTs in a manner that trivialises the high risks of trading in DPTs, nor engage in marketing activities that target the general public.”

The new rules come after the MAS observed that some DPT service providers have been actively promoting their services through online and physical advertisements or through the provision of ATMs. This could encourage consumers to trade DPTs on impulse, without fully understanding the risks.

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