A one-off or a brand new part of worldwide regulation?
Over the past week, regulators in three major jurisdictions across two continents have rolled out new rules governing cryptocurrency-related promotions and advertising. Citing consumer risks associated with investing in digital assets, authorities in the UK, Singapore and Spain tightened requirements on crypto firms’ marketing messages and prospecting practices. While some experts see this emerging trend as a sign of a new global phase in cryptocurrency regulation, questions remain about the efficiency and universality of this approach.
In the UK, Her Majesty’s Treasury issued a report published in July 2020 summarizing the findings of a public consultation on crypto asset promotions and the Government’s next steps to bring such promotions into the regulatory arena. The key takeaway here is that crypto-related marketing messages need to be included within the scope of the financial promotion order, which means that the same rules apply to them as to the promotion of traditional financial products.
The National Securities Market Commission, Spain’s main securities regulator, announced a set of new requirements that will apply to digital asset firms that target 100,000 or more people with their ads, and those that rely on social media influencers to to promote their products and services.
In both the UK and Spain, regulators will require crypto promotions to adhere to principles of clarity and fairness while emphasizing risk disclosures. Ad sponsors are also required to either obtain pre-approval (UK) or notify the authorities (Spain) of the upcoming campaigns.
The guidelines issued by the Monetary Authority of Singapore have even stricter restrictions. In essence, the regulator will allow digital asset service providers to advertise solely on their own platforms, while completely tabooing physical ads in public spaces or using third parties such as social media influencers.
Drivers of the new approach
Until recently, regulators gave crypto companies a lot of leeway when it came to promotional activities. If anything, it was big tech companies that experimented with censorship of crypto-related ads on their platforms. Now financial regulators are coming to the fore.
Nathan Catania, partner at digital asset firm XReg Consulting, sees this development as a sign of a changing regulatory landscape. Catania commented on Cointelegraph:
Jurisdictions that have ironed out AML/CFT regulations are now looking at other prominent crypto risks, and it’s clear that consumer protection is high on the agenda. Many major crypto players have ramped up advertising campaigns over the past year or so, and this is drawing the attention of policymakers and regulators who want to ensure these ads are not misleading consumers.
In a report by XReg on the matter, Catania and his colleagues go on to argue that crypto industry players “can expect regulators in other countries to follow suit in the coming months,” noting that the wave of restrictions on cryptocurrency Crypto promotions may represent the “second wave phase of crypto-asset regulation”, with a focus on consumer protection.
Indeed, the increased regulatory attention to promoting digital assets can be viewed as a logical sequence of actions that governments prioritize differently. Another interpretation also seems possible, according to which the authorities are simply reacting to an emerging reality, regardless of whether they see the more basic regulatory boxes as successfully checked.
Of course, the growth and mainstreaming of the digital asset space in recent years has seen crypto companies expand their reach to audiences well beyond the movement’s original core. While the exact numbers are difficult to pinpoint, it is clear that over the past year, crypto ad volume has seen massive growth across many countries and platforms, from Indian TV to London public transport.
Given this dynamic, regulators say it is likely that people with insufficient understanding of crypto as an asset class will be exposed to nasty promotional messages. Some of them might then be tempted to invest or otherwise engage in digital finance without fully understanding the risks.
A global trend?
Reliable data on the impact of the new restrictions on crypto promotions is unlikely to appear any time soon, and at this point it is impossible to say whether they will have a greater impact on people’s financial well-being or crypto businesses’ bottom line will have.
Changpeng Zhao, CEO of crypto exchange Binance, said that the growing trend will not affect the demand for digital asset products as word of mouth is the most important marketing tool in this field.
Nor is there any guarantee that regulatory concerns about cryptocurrency advertising are geographically evenly distributed. For one thing, there is currently little evidence in the United States that crypto ads are in the crosshairs of state watchdogs.
Raul Garcia, financial services principal at Florida-based accounting firm Kaufman Rossin, noted to Cointelegraph that in the United States, the regulatory focus is on taxation and investor protection, while promotional messages remain outside the regulatory scrutiny. Garcia commented:
Everywhere in the US there is something about crypto, they advertise […] And I really don’t see any strong resistance, cap on crypto promotion or anything like that. Making too much money!
The difference between the jurisdictions increasing oversight of cryptocurrency advertisements and the US can be attributed to the increased focus on consumer protection characteristic of many European nations and Singapore compared to America’s focus on the free market. All other regulatory considerations remain the same, looser rules on promoting digital assets could make the US a more attractive destination for crypto companies in the future.