February 21, 2022
CAP explains that there are several different products that fall under the umbrella term of “cryptoassets”:
- Cryptocurrencies: digital currencies that use encryption techniques to regulate and limit how many units of currency are available; there are now over 1,500 in existence;
- utility tokens: a form of cryptoasset that can be used within a specific ecosystem; they allow users to perform some actions on a certain network unique to their ecosystem; they are linked to cryptocurrencies as they use Distributed Ledger Technology (DLT) and are sometimes acquired through the prior purchase of a cryptocurrency; they 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; and
- Non-fungible Tokens (NFTs): a digital certificate of authenticity that certifies the uniqueness of a certain digital asset, such as a piece of digital art; they are linked to cryptocurrencies because they use DLT and are also generally acquired through the prior purchase of a cryptocurrency; an NFT is not the piece of art or image itself, but a method of tracking ownership.
Currently, the vast majority of cryptoassets are not currently regulated by the Financial Conduct Authority (FCA) and do not fall under the umbrella of financial compensation schemes, such as the Financial Services Compensation Scheme or the Financial Ombudsman Service. As such, the FCA currently does not exercise powers over advertising of most cryptoassets products in the UK. Regulation is not expected to take effect before 2023.
In the meantime, CAP explains, all unregulated cryptoassets will continue to be subject to the Advertising Code. CAP advises that when advertising cryptoassets, marketers should:
- make clear that cryptoassets are unregulated and not protected: this must be done in a clear and prominent way ensuring that the message is legible and can be easily seen by consumers;
- not take advantage of consumers’ inexperience or credulity: Code rule 14.1 states that financial products must be set out in a way that allows them to be understood easily by the audience being addressed; marketers should think about where an ad is to be placed and the terminology that is used; as cryptoassets are fairly new and are unique, a lot of the terminology will be new to most consumers and could well be confusing and therefore potentially misleading;
- include all material information: as well as the rules in Section 14 of the Code, other sections of the Code will be relevant; the rules in Section 3 of the Code cover misleading advertising; in line with rule 3.3, ads must not mislead consumers by omitting material information;
- make clear that value can go down as well as up: Code rule 14.4 states that ads must make clear that the value of investments is variable and, unless guaranteed, can go down as well as up;
- state the basis used to calculate any projections or forecasts: Code rule 14.3 states that the basis used to calculate any rate of interest, forecast or projection must be apparent immediately; and
- make clear that past performance is not a guide for future performance: Code rule 14.5 states that ads should make clear that past performance or experience does not necessarily give a guide for the future.
To access the CAP Advice in full, click here.