UK advertising regulator issues rebukes to crypto industry

The UK advertising watchdog has taken the crypto industry to task for “widespread” problems with misleading and irresponsible ads, issuing rulings against several of the sector’s biggest firms, including Coinbase and eToro.

The Advertising Standards Authority on Wednesday released formal rebukes to seven firms for breaching UK ads industry standards with a wide range of promotions, from online campaigns to endorsements by social media influencers.

Papa John’s, the pizza chain that claims to have accepted the first ever purchase made in Bitcoin, came under fire from the regulator for offering £10 cash back to customers in the form of crypto tokens. The ASA said the promotional deal “trivialised” investing in risky crypto assets.

The enforcement push by the ASA comes after the agency declared misleading crypto marketing a “red alert” priority and pledged to crack down.

“When we said ‘red alert’ we meant it,” said Miles Lockwood, director of complaints and investigations at the ASA. “Something has got to change fast in the online space.” 

Financial Conduct Authority research has found that only a minority of people buy digital coins based on advertising, but they tend to have worse outcomes. “Consumers who are persuaded by adverts are much more likely to regret their purchase,” the FCA said in June.

The ASA told the FT it “deliberately” chose a set of cases to set clear standards for the fast-changing sector, particularly around online ads.

The regulator criticised firms for portraying crypto investing as “simple and suitable for anyone”, saying advertising should reflect the reality that digital asset trading is “sophisticated and complex” and could expose inexperienced retail investors to painful losses.

The group of cases also included rulings against trading app Luno and crypto exchange Kraken. A previous ASA ruling prompted Luno to add risk disclaimers to its ads campaigns on London public transport.

In responses published by the ASA, several of the firms, including Luno, blamed mistakes or lapses by third parties for the failure to include risk warnings in the ads the watchdog singled out. A number of companies said the claims of simplicity referred to their services, not to crypto investing itself.

Coinbase said the phrase “simple and easy to use” in one of its ads “did not refer to cryptocurrency as a whole . . . but referred to their app”. Papa John’s said the ads “made no comment on investing in Bitcoin” and that the promotion was similar to a standard cashback offer.

The ASA also told companies to make it clear that crypto assets are not regulated in the UK and to alert crypto buyers to their capital gains tax liability, since “the general public were unlikely to be aware” of tax rules.

eToro, along with other firms, pushed back on the expectation to include tax details. The brokerage app said “there was no regulatory basis” for the requirement and that it does not apply to traditional financial products overseen by the FCA.

Advertising rules for the crypto industry could soon change as the UK Treasury has said it will weigh in on whether to extend the FCA’s oversight to some crypto asset promotions before the end of the year.

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FCA chief executive Nikhil Rathi told MPs on the Treasury select committee last week: “We are expecting to get some new powers around financial promotions and crypto assets.”

Consumer finance experts have said the current rules are “in desperate need of modernising” and that there is a “crazy anomaly” between the strict FCA rules governing traditional financial products and the less specialised ASA standards applied to risky crypto assets.

Some lawmakers have expressed scepticism about simply adding “more small print” to crypto disclaimers. MP Harriet Baldwin said using the word “investment” in crypto risk warnings “endorses the idea that this is an investment and it is on a par with a FTSE 100 company or a unit trust”.

Adverts for financial products overseen by the FCA normally need to be approved beforehand by an authorised firm and companies can face fines for serious breaches of the watchdog’s standards.

The ASA said it will set out broader guidance on crypto advertising in an enforcement notice to the industry next year. The regulator intends to widen its crackdown to include crypto assets such as non-fungible tokens and “fan tokens”, a form of cryptocurrency that gives its users membership perks, saying NFT ads have recently “skyrocketed”.