Note: This advice is given by the CAP Executive about non-broadcast advertising. It does not constitute legal advice. It does not bind CAP, CAP advisory panels or the Advertising Standards Authority.
Cryptoassets are complex and volatile products that are also becoming increasingly popular and widespread in the UK.
Following the introduction of new rules by the Financial Conduct Authority (FCA), the ASA no longer regulate technical claims in ads for cryptoassets in non-broadcast media.
From the 8 October 2023 the FCA took over the regulation of ads for ‘qualifying cryptoassets’ – cryptoassets that are transferable and fungible, including cryptocurrencies and utility (fan) tokens – and introduced new rules.
Cryptoassets are defined by the Financial Conduct Authority (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.” There are a number of different products that fall under the umbrella term of “cryptoassets”.
Cryptocurrencies are probably the most well-known and longest established form of cryptoasset. A cryptocurrency is a digital currency, which uses encryption techniques to regulate and limit how many units of currency are available. Cryptocurrencies use methods such as “blockchain” to verify the transfer of funds, whilst operating independently of a central bank. The most well-known cryptocurrency is Bitcoin along with Ethereum, Ripple, Bitcoin Cash, Litecoin, and EOS, but there are now over 1,500 in existence.
Utility tokens are a form of cryptoasset that can be used within a specific ecosystem. These tokens allow users to perform some actions on a certain network and is unique to its ecosystem and are linked to cryptocurrencies because they use DLT and are sometimes acquired through the prior purchase of a cryptocurrency. These tokens can be used to create incentive schemes enabling people to perform unique actions within the ecosystem. “Fan tokens” used by sports clubs are a form of utility token.
Non-fungible Tokens (NFTs) are a digital certificate of authenticity that certifies the uniqueness of a certain digital asset, like a piece of digital art. NFTs are linked to cryptocurrencies because they use DLT and are also generally acquired through the prior purchase of a cryptocurrency. It is important to remember that the NFT is not the piece of art or image itself, but a method of tracking ownership. If somebody sells you an NFT for a digital file, that does not stop them sending copies of that file to other people.
The FCA rules apply to all firms who market qualifying cryptoassets to UK consumers, regardless of which country they are based in, or the technology used. However, cryptoassets as a product remain unregulated.
Also, the new rules do not cover cryptoassets that are non-fungible, such as Non-Fungible Tokens (NFTs), or Limited Payment Tokens that can only be redeemed with the issuer and used for the payments of specific goods and services, such as non-monetary customer loyalty points.
Cryptoassets have been classified as ‘Restricted Mass Market Investments’, meaning that they can be mass marketed to UK consumers subject to certain restrictions, in addition to the overarching requirement that financial promotions must be fair, clear and not misleading. The restrictions include: requirements to include clear risk warnings; risk summaries and a ban on incentives to invest such as refer a friend bonuses and new joiner bonuses.
The CAP Code still applies to the ‘non-technical’ aspects of ads for products by FCA-regulated business, such as matters relating to offence, social responsibility, superiority claims, fear and distress, denigration and other claims that do not relate to specific characteristics of the product.
Also, cryptoasset exchange providers and custodian wallet providers are required to register with the FCA to comply with the amended Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (MLRs). The FCA is the supervisor of UK cryptoasset businesses under the MLRs. Cryptoasset firms that are registered with the FCA can be found on the register on their website.
Ads must be set out in a way that is socially responsible way that allows them to be understood easily by the audience being addressed. Therefore, marketers should think about where an ad is to be placed and the terminology that is used. For example, if an ad is placed in a specialist financial publication, then more technical jargon may be able to be used, than if an ad is placed in an untargeted medium such as an outdoor poster. As these are fairly new, and are unique, a lot of the terminology will be new to the majority of consumers and could well be confusing and therefore potentially misleading.
In 2019, the ASA received complaints about a press ad for investing in cryptocurrency and focused on the value of Bitcoin as the complainants felt the ad failed to illustrate the risk. The ASA told the advertiser to ensure that financial information in their ads was set out in a way that allowed it to be readily understood by the audience being addressed and that the risks of investments were sufficiently clearly signposted (HDR Global Trading, 14 August 2019).
In 2022, the ASA challenged whether an ad for cryptocurrency which featured a cartoon dog was irresponsible. The ASA acknowledged that the cartoon dog, who was wearing a Viking helmet, was the company logo, and that many cryptocurrencies have their origin in humour and memes. However, they considered that the use of cartoon imagery gave the impression that purchasing cryptocurrency was a light-hearted and trivial matter, and distracted consumers from the seriousness of an investment which was volatile and unregulated.
A second challenge was made about the accompanying claim “MISSED DOGE. GET FLOKI” and whether this statement exploited consumers' fears of missing out. The ASA eventually ruled that the ad implied it was necessary for consumers to purchase Floki immediately to make a significant profit and prevent them from missing the next big crypto investment. As a result, the ad was upheld on both points – trivialising investment, and exploiting consumers fears/incredulity (Floki Inu, 2 March 2022).
The ASA investigated an ad for a promotion which offered free Bitcoin with the purchase of pizza, which required participants to open a trading account. The ASA considered the use of pizza to promote a cryptocurrency account, encouraged consumers to engage in a high-risk investment without consideration and trivialised what was a serious and potentially costly financial decision, especially in the context of the intended audience who were likely to have limited knowledge of cryptocurrency. Therefore because the ads took advantage of consumers’ inexperience or credulity and trivialised investment in cryptocurrency, the ASA concluded that they were irresponsible and breached the Code (Papa John's (GB) Ltd t/a Papa John's Pizza, 15 December 2021).
The ASA has ruled against multiple ads which did not make clear that Capital Gains Tax (CGT) had to be paid on profits from investing in cryptoassets, once allowances were exceeded. In these cases, the ASA considered that, by not making clear that CGT could be payable on profits from investing, the ads took advantage of consumers’ inexperience or credulity (eToro (UK) Ltd, 15 December 2021/ Arsenal Football Club plc, 22 December 2021/ Exmo Exchange Ltd, 15 December 2021/ Luno Money Ltd t/a Luno, 15 December 2021 / Payward Ltd t/a Kraken, 15 December 2021 / CoinBurp Ltd, 15 December 2021/ Coinbase Europe Ltd t/a Coinbase, 15 December 2021/ Forisgfs UK Ltd t/a Crypto.com, 5 January 2022).
The ASA may investigate complaints about the truthfulness of some claims that do not relate to the specific characteristics of the product. IMarketers should hold evidence to support claims about non-technical aspects of a prouct in line with Rule 3.7 of the CAP Code.
If they are unsure about the legislation they need to comply with, marketers should consult a solicitor or the FCA. Under FCA guidance, advertisements should be clear, fair and not misleading. Please note however that the FCA does not pre-approve proposed financial marketing communications for authorised firms. Technical guidance is available on specific matters or rule interpretations only, not on the advertisement as a whole. See the FCA’s website, www.fca.org.uk.