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Regulators Issue Warnings to Consumers in Respect of Cryptocurrency Advertising

AUTHORs: Michael Byrne co-author(s): Samuel Elliott Services: Data Protection, Privacy and Cyber-security DATE: 05/05/2022

The Advertising Standards Authority of Ireland (“ASAI”) recently warned that it is monitoring the regulatory response in the UK and worldwide to cryptoasset advertising. 

The ASAI further noted that it had received complaints in respect of three different cryptoasset advertising campaigns, the most recent complaint having been submitted in respect of the campaign run by Floki Inu.  These complaints are the first to be made in respect of the advertising of a cryptoasset in Ireland, and provide helpful guidance for cryptoasset service providers seeking to expand into the Irish market. 

ASAI Complaint against Floki Inu Altcoin 

The creators of the Floki Inu altcoin appointed Media Agency Group to run an advertising campaign in Dublin, which included advertisements on buses and billboards throughout the city. The advertisements featured a cartoon dog wearing an Irish football jersey and Viking helmet. The copy of the ad read “Crypto’s No. 1 Dog. Get Floki. Theflokiinu.com”.

Two complaints were made in respect of the advertising, with both complainants noting that – as a cryptocurrency – the potential value of Floki Inu could rise or fall. Section 13.5 of the ASAI Code provides that “Marketing communications should make it clear in a prominent manner that the value of investments is variable and, unless guaranteed, can go down as well as up”. Additionally, one of the complainants objected to the advertising on the grounds that it did not include any warning as to the value of the product falling. 

Responding to the complaints, the media agency noted that the copy had been submitted for approval by the media owner. Additionally, the media agency submitted that  “had any disclaimers been required, their client would have been happy to add them, but the advertisements were accepted without question”. Additionally, the media agency sought to argue that the campaign was a “brand piece”, with “no direct reference to potential returns, past performance, or false promises”. The media agency further argued that Section 3.1 of the ASAI Code 7th Edition provides that “primary responsibility” may vest with the agency, but that the phrasing was indicative of the possibility of other sources of responsibility, and that the “media owner” also bore responsibility in carrying out due diligence to ensure compliance with the ASAI Code.  

The ASAI upheld both complaints, noting the advertising had promoted a financial product – the value of which could fluctuate – and the ASAI Code required such advertiser to state “in a prominent manner that the value of investments is variable and, unless guaranteed, can go down as well as up”. Accordingly, the advertising breached Section 13.5 of the ASAI Code, and the ASAI ordered that the campaign must not be re-run in current form. 

Advertising Cryptocurrencies - Developments in the UK 

On 18 January 2022, HM Treasury announced plans to strengthen the rules on advertisement for cryptocurrencies and other crypto-based assets.  More particularly, the UK Government intends to inter alea strengthen the risk warnings attached to adverts, and prohibits certain promotional initiatives (eg, new joiner or refer-a-friend schemes). Additionally, the UK Government intends for the Financial Conduct Authority (“FCA”) to regulate advertisements for certain cryptoassets. 

The proposed amendments come alongside revised guidance on cryptoasset advertising from the UK Advertising Standards Authority (“ASA”) issued on 14 February 2022. The revised ASA guidance followed several instances of enforcement actions taken against cryptoasset firms in respect of misleading or irresponsible advertising to consumers.  

Whilst the revised guidance will be replaced by the proposed legislation for certain assets in 2023, the ASA guidance will remain effective until that time, and certain assets will remain under the remit of the ASA regardless (eg, NFTs). 

Care should be Taken by Cryptoasset Firms and Advertising Agencies

Whilst cryptoassets largely remain unregulated in Ireland, care should be taken by crypto companies and advertising agencies to ensure that investors are adequately warned as to the risks of buying such products in line with local advertising standards. In particular, in Ireland, advertisements should be checked for compliance with the ASAI Code, and clear warnings as to the risks of investing in cryptocurrency should be provided to consumers. 

Consumer protection remains a key focus for regulators of cryptoasset service providers and firms. The future implementation of the Markets in Crypto Assets Regulation will likely bring increased regulatory scrutiny from the Central Bank. 

For further assistance in relation to any issues raised in this article, please do not hesitate to contact Michael Byrne or any member of Matheson’s Data Protection, Privacy and Cyber Security Team.

Credit also to Samuel Elliott, solicitor, and Aaron Leonard, trainee, who assisted in the research and drafting of this article.