Guidelines On Regulation Of Virtual Digital Assests: A Global Perspective – Technology

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.