Cryptocurrencies or cryptoassets are tokens that are not ‘specified investments’ or e-money, and can be traded, which includes well-known tokens such as Bitcoin, Ether or Ripple.
What is a cryptocurrency?
A cryptocurrency is a digital currency in which encryption techniques are used to regulate how many units of currency are available. They use methods such as “blockchain” to verify the transfer of funds, whilst operating independently of a central bank. The most well-known cryptocurrency is Bitcoin along with Ethereum, Ripple, Bitcoin Cash, Litecoin, and EOS, but there are now over 1,500 in existence.
Not only are there adverts for the cryptocurrencies themselves, but we are also seeing adverts for investments linked to cryptocurrencies.
Are cryptocurrencies regulated by the Financial Conduct Authority (FCA)?
Cryptocurrencies themselves are not regulated. However, where cryptocurrencies are traded on existing regulated platforms, such as Contract for Difference (CFDs), they fall under the FCA remit and should be regulated. The FCA recently announced that due to the complexities and volatility of these products, the sale of regulated products such as any derivatives (ie contract for difference – CFDs, options and futures) are banned to retail consumers.
However, some platforms, such as cryptocurrency exchanges, are outside of the FCA’s remit, and such cryptocurrencies and assets are not financial products even if they are presented as such.
Can jargon be used in ads?
Committee of Advertising Practice (CAP) Code states that financial products must be set out in a way that allows them to be understood easily by the audience being addressed. Therefore marketers should think about where an ad is to be placed and the terminology that is used. For example, if an ad is placed in a specialist financial publication, then more technical jargon may be able to be used, than if an ad is placed in an untargeted medium such as an outdoor poster. As these are fairly new, and are unique, a lot of the terminology will be new to the majority of consumers, and could well be confusing and therefore potentially misleading.
In 2019, the Advertising Standards Authority (ASA) received complaints about a press ad for investing in cryptocurrency and focused on the value of Bitcoin as the complainants felt the ad failed to illustrate the risk. The ASA told the advertiser to ensure that financial information in their ads was set out in a way that allowed it to be readily understood by the audience being addressed and that the risks of investments were sufficiently clearly signposted (HDR Global Trading, 14 August 2019).
What are the risks with cryptocurrencies?
As previously mentioned, cryptocurrencies may be unregulated products and could be based overseas. This would mean that there is no investor protection and so there would not be the protection provided by the Financial Services Compensation Scheme or Financial Ombudsman. Also cryptocurrencies (and investments linked to their performance) can be extremely volatile which means they are vulnerable to dramatic changes, so whilst they may go high up in value, they could also severely drop meaning a loss of capital.
Advertising rules say ads must make clear that the value of investments is variable and, unless guaranteed, can go down as well as up. Therefore if an ad features past performance of a cryptocurrency’s value then this must be qualified within the ad.
Note: This advice is given by the CAP Executive about non-broadcast advertising. It does not constitute legal advice. It does not bind CAP, CAP advisory panels or the ASA. CAP’s AdviceOnline entries provide guidance on interpreting the UK Code of Non-broadcast Advertising and Direct & Promotional Marketing.
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