by Geraint Lloyd-Taylor
What do pizza chains, football clubs and crypto trading platforms all have in common? They have all been reprimanded by the Advertising Standards Authority (ASA) for advertisements relating to crypto assets.
They are by no means alone. Even before the market volatility we have seen in recent months, the ASA has been looking hard at the crypto economy, including the companies, celebrities and influencers that endorse them.
Indeed, back in November last year the ASA classified crypto advertising as a ‘red alert’ priority issue.
The underlying issue here is that, for the most part, cryptoassets are unregulated in the UK.
The government announced in January 2022 that it would be strengthening the rules on misleading crypto ads, with the majority of such ads set to be brought into the scope of the Financial Promotion Regime and under the watchful eye of the Financial Conduct Authority (FCA), which wields more power to sanction non-compliance than the ASA.
But this is still a little way off. In the meantime, the ASA is dedicating considerable time and energy to investigating and publishing rulings against UK advertisers of cryptoassets. Virtually all of the ASA’s formal investigations in relation to crypto ads over the past six months resulted in an upheld ruling – meaning the ASA found the advertisers in breach of the rules.
This has all contributed to a fast moving and often complex environment for companies who are either seeking to promote their crypto products and services (including exchanges), or those looking to use other types of cryptoassets to enhance their wider brand marketing (such as through competitions or prize draws).
Through its rulings, the ASA has sent the message that it wants to be ‘firm’, with seemingly less emphasis on appearing ‘fair’. Also, through its rulings, the ASA has come up with new rules by the back door. This means the underlying rules remain the same, but the ASA has overlaid them with new requirements. These include the need for crypto ads to include detailed warning notices, for example to make clear that CGT may have to be paid on profits made from the sale of cryptoassets.
For the brands that were the subject of the upheld rulings, it was unfortunate that the ASA didn’t make its position clear on these issues before launching investigations and publishing a slew of adverse rulings on these issues.
In March this year, after publishing several upheld rulings, the ASA issued an Enforcement Notice to clarify and summarise its ‘guidance’ in this area. Since last month, the ASA’s compliance team has been actively monitoring for problem crypto ads. Expect to see more rulings coming in the next few weeks and months. Where appropriate, the ASA will also report non-compliance to the FCA.
What about NFTs?
NFTs are currently excluded from the government’s proposed changes and fall outside the remit of the FCA, which means the ASA is to all intents and purposes the only substantive NFT regulator in town, with any ads and promotions needing to comply with the advertising code. It would be very helpful, therefore, if the ASA were to issue more guidance to explain its approach to regulating ads for NFTs – instead of (or at least before) launching investigations into advertisers that are doing their best to guess how the ASA will interpret the existing rules.
In the ASA’s guidance on crypto ads over recent months, it has occasionally lumped NFTs in with cryptocurrencies, while on other occasions they are excluded – neither approach has been helpful to advertisers in this fast moving area.
When it comes to promoting NFTs, former Premier League footballer Michael Owen is perhaps the most recent high-profile celebrity to have come under fire – as a result of his tweet claiming that his NFTs could not lose value – a claim that was pretty swiftly clarified by his business partner.
Crypto ad guidelines in focus
When promoting most types of crypto asset, and this includes promotions by non-crypto brands that offer crypto assets for sale, or as a prize, or that simply want to give them away, the ad must make clear that crypto is unregulated; profits may be subject to Capital Gains Tax (CGT); and that the value of the investment can go down as well as up. Importantly, these qualifications have to be prominent, in a way that’s appropriate to the medium of the ad.
Advertisers should also avoid employing ‘FOMO’ tactics, and must not trivialise investment in crypto by making it sound like something quick, cheap and easy to do without the need to give it any thought.
The Papa John’s example is a case in point. The pizza company ran a promotion, offering £10 of free Bitcoin with the purchase of pizza. This required participants to open a trading account. The ASA considered that using 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“.
To the outside observer it may be difficult to see how giving someone £10 of Bitcoin prompts them to engage in high-risk investment, or how that could be seen as a serious and potentially costly financial decision. Also, some of the specific requirements, including those around CGT, do smack of being made up on the hoof. This is particularly odd given that CGT is only payable when significant (five figure) profits are made, so it might not seem irresponsible or misleading to omit any mention of a potential CGT liability in an ad involving £10 worth of crypto.
But at least now the ASA has set out its stall, and if the ASA remains consistent in its new approach, advertisers should have a clearer understanding of what is required.
Targeting an ad at a more sophisticated, investment-savvy audience can help, but when the ad is untargeted the ASA assumes it will be viewed by the average member of the public, who isn’t expected to know much (or anything) about crypto, and its suitability or otherwise as an investment. The ASA sets a low bar when it comes to determining whether and ad takes advantage of the average consumer’s potential inexperience or credulity– so advertisers are generally well advised to keep their message relatively simple and straightforward.
Sensibly, the ASA advises against the use of jargon, which does seem justifiable given the potential for misunderstanding in this fast paced and relatively new sector. On balance, the requirement for clear signposting of the risks makes sense in most scenarios – even if the method by which the ASA came up with these requirements was less than ideal.
Taken together, the ASA has clearly made the most of the wide discretion it has to apply the spirit, as well as the letter, of the advertising codes – and has perhaps gone too far in some respects.
Having said that, stricter rules are coming. The government and the FCA are consulting on the new rulebook, which could mean we’ll see far fewer influencers dabbling in crypto advertising, and generally fewer crypto ads on social media full stop. Brands, advertisers, and influencers in the crypto world will need to continue to adapt quickly to survive.
Geraint Lloyd-Taylor, partner and deputy head of Advertising and Marketing at law firm Lewis Silkin