Worldwide: Guidelines On Regulation Of Virtual Digital Assests: A Global Perspective

Introduction

The Advertising Standards Council of India ("ASCI") has recently released the "ASCI Guidelines on Advertising and Promotion of Virtual Digital Assets and Services". Taking into account the growing popularity of crypto currencies and Non-Fungible Tokens (NFTs), the ASCI has released the aforementioned Guidelines, since often advertisements pertaining to crypto currencies, NFTs and various other kinds of Virtual Digital Assets ("VDA") do not disclose risks associated with investing in the same. After due consultation with several stakeholders, the above guidelines have been published by ASCI and will be applicable on all Ads on and after 01 April 2022. Additionally, older Ads/Posts etc which are in contravention to these Guidelines shall be taken down before 15 April 2022. The Guidelines are applicable to Advertisers, digital media marketing houses owners as well as celebrities and prominent persons who endorse Digital Assets.

Key Takeaways

Across the Globe

The advertisements made in the form of Social Media Posts where prominent people or influencers have been marketing Virtual Digital Assets are unregulated in many countries. Significant public figures such as Boxer, Floyd Mayweather and TV Star, Kim Kardashian are actually facing lawsuits for promoting Crypto Currency called "EthereumMax" after its value crashed. In this section, similar guidelines across various countries are examined vis-à-vis case studies.

In Singapore

The Monetary Authority of Singapore (MAS), on 17 Jan 2022 published "Guidelines on Provision of Digital Payment Token Services to the Public". The same came after MAS had been regularly issuing warnings associated with Digital Payment Tokens or DPTs owing to their risky nature. In Singapore, DPTs are regulated under the Payment Services Act ("PSA") which regulate them for money laundering and terrorism, however the conduct of DPT services are being regulated by the recently published abovementioned guidelines. The same are applicable to all DPT services which have been granted a license under the PS Act, banks and financial institutions which provide DPT services in Singapore and those operating under the transitional exemption.

1. Under the Guidelines, the following are to be observed while promoting DPT services to general public:-
   
   • DPT Service Providers to not be advertised in a manner which "trivialises" the risks associated with them. This is applicable to public transport, public transport venues, broadcast media, periodical publications, public events and road-shows as well as third party websites and social media platforms.
   • All disclosures to be made on DPT Service provider's webpage, apps, and social media platforms.
   • DPT Service providers to not engage social media influencers or third party websites to promote their services, the same also places a ban on joint promotional campaigns.

In Spain

Spain also issued regulations which shall govern advertising of crypto-assets in January, 2022 which have been into force since Feburary, 2022. As per the Guidelines, any marketing campaign which is expected to exceed or target more than 100,000 consumers is supposed to inform Spain's National Securities Market Commission also called "CNMV", 10 days prior to publishing the same. The Guidelines are said to apply to crypto-asset providers as well as third parties and private persons promoting the same on their behalf. The same also apply to influencers who have more than 100,000 subscribers and are offered incentives/ remuneration to promote crypto-assets.

The CNMV in November, 2021 had cautioned soccer player Andres Iniesta when he endorsed the Crypto-currency exchange platform Binance on social media. They watchdog informed the soccer player that he should have been careful and informed the consumers properly before encouraging them to invest.

Lastly, the guidelines clearly mention that advertising of crypto investments ought to be "clear, balanced, fair and non-misleading content and information on the risks in a prominent manner." Interestingly, the Guidelines make no mention of Non-Fungible Tokens or NFTs, advertisements qua which may also be required to be regulated in the future.

In the European Union

Several European Supervisory Authorities such as European Banking Authority ("EBA"), European Securities and Markets Authority ("ESMA") and European Insurance and Occupational Pension Authority ("EIOPA") have consistently warned consumers of the speculative nature of Cryto-assets and the risk associated with them. The authorities have reiterated that these kinds of assets are not to be viewed as a means of payment or exchange and categorically stated that "Consumers face the very real possibility of losing all their invested money if they buy these assets". The authorities have also cautioned consumers from believing advertisements by social media influencers who promise high and fast returns to these assets which pertinently noting that these assets and related products "fall outside the existing protection under current EU Financial Services Rules". In their recent advisory/Warning vide their Press Release dated 17 March 2022 it is noted that while crypto assets and related products are aggressively marketed, the information supplies may be at times, unclear, incomplete, inaccurate, or even deliberately misleading. The document addresses aspects which have also been covered by ASCI guidelines such as the length of these Ads being extremely short, focussing only on gains and not on risks involved. A caution against believing social media influencers who receive a financial incentive for promotion is also noted in the same since such Ads may be biased. The above document/Warning has been released by ESA in furtherance of Article 9(3), Founding Regulations of ESA.

On 12 Feburary, 2018 the European Supervisory Authorities for Securities ESMA, banking EBA and insurance and pensions EIOPA had issued a pan-EU warning regarding risks associated with buying Virtual Currencies. This Warning was almost similar to the one published in 2022 however the same was issued in context of Bitcoins and other kinds of "Virtual Currencies" such as Ripple, Ether and Litecoin. The Warning also noted that Virtual Currencies, "are highly risky, generally not backed by any tangible assets and unregulated under EU law, and do not, therefore, offer any legal protection to consumers."

The risk through Advertisements of such Assets has sprung forth only recently since the popularity of the same has seen many social media influencers promoting the same as a part of a paid campaign. These activities will soon be regulated in the EU as well, however, at the moment, the ESA via its warning dated 17 March 2022 aims to institute a sense of wariness and self regulation amongst consumers.

In the United Kingdom

The need for regulation of Crypto-marketing came to the fore when the London Public Transport Network witnessesed around 39,560 Ads from 13 Firms between April-September, 2021. The same came under the scanner when people began calling for bans since these Ads had the potential of "luring them into risky investments".

The Financial Conduct Authority ("FCA") of the UK along with Advertising Standards Authority ("ASA") has taken note of the growing concern around Crypto-Assets. The FCA has envisioned that the change in law for Crypto-Assets to ensure that the same is in "line with the high standard that other financial promotions such as stocks, shares and insurance products are held to." On the other hand, the ASA which addresses complaints that are received once Ads are published and are in public domain has also noted that regulation of Ads concerning Crypto-marketing is a "Red Alert" priority.

The ASA has not released any guidelines per se to regulate the Ads surrounding Crypto-Assets, but has been prompt in addressing complaints against Firms and Companies who are behind such misleading Ads. While deeming the campaigns in breach of Advertising standards, the ASA applied the UK Code on Misleading and Irresponsible Advertising.

Recently, the FCA in its Consumer Investment Strategy investigated the risks associated with investing in high risk products especially where the consumers are unaware of the risks involved. In January, 2020, with the introduction of new Regulatory Powers to FCA, all Crypto-Assets businesses were required to conform to the Money Laundering Regulations as well as register themselves with the FCA by 15 December 2020. As on date, the page detailing Crypto-Assets and Consumers, a primer on risks associated has been provided. The same notes that Crypto-Assets are "very high risk and speculative investments" and that, "if you invest in Crypto-Assets, you should be prepared to lose all your money". Further, the page also states that consumers who invest in such assets will not have access to Financial Ombudsman Services or the Financial Services Compensation Scheme. Additionally, the FCA has also recommended that consumers check the Financial Services Register before investing in Crypto Assets and ensure that the same are registered and allowed to carry business as per the same.

Therefore, it appears that the rules governing Crypto Assets in UK will be similar to the ones governing financial promotions and while the UK does not have guidelines as of now governing crypto marketing initiates only, the above guidelines requiring them to register as a Financial Service will regulate their activities to some extent. In any case, if case crypto-assets are marketed in a manner which is inadequate or misleading, the same may be referred to the ASA.

Notably, ASA, in December, 2021 ruled against the renowned Arsenal Football Club which as per them has broken applicable advertising rules since they had been promoting their Fan-Tokens in a way which failed to outline the risks associated therein. Recently, the ASA asked more than 50 Crypto Firms to evaluate their Ads and make them complaint to existing rules calling such misleading Ads as "Problem Ads".

Conclusion

The issue concerning marketing initiatives for VDAs is a growing concern worldwide as is evident from above. While ironclad indemnity clauses with VDA Platforms by Advertisers /Social Media Intermediaries/Celebrities to limit their libaility may seem to be a way to go, it is wise to be informed and rather be in compliance with the ASCI Guidelines. If one is a key player in the VDA landscape or even someone who has posted content or endorsed VDAs in any manner possible, it is recommended that the person ought to keep the above guidelines in consideration before endorsing the same. These guidelines are also a great source for the consumers who wish to invest into VDAs since they may check compliance of the same by platforms and providers as well as influencers who promote the same before they go ahead and invest. Thus, the entire mechanism is a welcome move, since it places much awaited checks and balances in this unregulated landscape of VDAs.

Footnotes

1. Regulated Products in context of these Guidelines refer to Financial Assets which are regulated by RBI.

2. Regulated Entities in context of these Guidelines refer to Governmental Regulatory Bodies such as ASCI, RBI etc.

3. Supra 1.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.