The Financial Conduct Authority (FCA) is introducing “tough new rules” for marketing crypto assets. The rules focus on ensuring advertisements are clear and transparent so the public know what they are investing in. But will this continue to ensure DeFi is accessible? How can the FCA strike the balance between ensuring the public is protected, while allowing qualified investors to access the world of decentralised finance?
In 2021, Crypto.com paid over $800 million on marketing including an advert starring Matt Damon during the SuperBowl. However, in 2022, the company came under heavy speculation, with some even brading the company a Ponzi Scheme after its sudden retraction of benefits investors had paid, as well as the company’s connections to the fraudulent WireCard. Disruption Banking spoke with a 23 year old law student that lost over £300 after investing in crypto.com.
He told Disruption Banking: “Personally I invested in crypto.com through word of mouth. I used a refer a friend scheme and got some free coins as a reward. The extensive advertising helped to establish the brand as legitimate and I trusted that I would see rewards from my investment.” He shared that “the disclaimers at the bottom of the advert were not enough to warn of potential dangers and losses. I wasn’t aware of the retraction of the benefits either.
“I was referred by a friend. Refer a friend scheme is a common marketing tool used by other companies such as gambling websites so I am surprised the FCA are banning it exclusively for crypto platforms.”
Does he regret doing so? “I regret investing in crypto.com. I just jumped on the hype train. If I were to invest again, I would ensure I’d done more research prior.”
It’s true that crypto companies have generally made greater efforts to advertise to the public, certainly in comparison to TradFi firms. After all, rguably the whole point of DeFi is to empower individual retail investors and give them the tools to build their wealth. The FCA must therefore find a balance between ensuring crypto platforms can market themselves but also protect the customers.
In a recent statement, the FCA stated it is introducing “tough new rules for marketing crypto assets,” including banning the “refer a friend” schemes. Sheldon Mills, Executive Director, Consumers and Competition, said: “It is up to people to decide whether they buy crypto. But research shows many regret making a hasty decision. Our rules give people the time and the right risk warnings to make an informed choice.
“Consumers should still be aware that crypto remains largely unregulated and high risk. Those who invest should be prepared to lose all their money.”
The FCA is already cracking down on misleading adverts. Arsenal Football Club was reprimanded for its misleading advertisement of fan tokens by partnering and advertising with Socios. The FCA concluded that “the ads trivialised investment in cryptoassets and took advantage of consumers’ inexperience or credulity by not making clear that Capital Gains Tax (CGT) could be payable on profits from investing in paid-for Fan Tokens. We concluded the ads were irresponsible and breached the Code.”
The advert encouraged fans to download the Socios app to so they could choose a song to play when Arsenal won a game. However, at the bottom of the advert, the small print stipulated: “In order to buy $AFC fan tokens you need to purchase the cryptocurrency Chiliz. Please remember that the future value of Fan Tokens is dependent on supply and demand, and can therefore go up as well as down. Fans should be aware that they could lose some or all of their money invested. We advise you to spend only what you can afford and seek independent financial advice if required.”
To adhere to the new FCA regulation, Arsenal must not advertise crypto adverts in the same format as done previously and not mislead customers by omitting information within the adverts.
The crackdown on crypto advertising picked up momentum following scams by crypto platforms and bad players within the space, including FTX and TRON founder Justin Sun. The principal area of concern for the FCA is to ensure the public knows what they are investing in and have full transparency of what is being advertised to them. Protecting customers is at the forefront of the FCA’s mission, but the test will be finding the balance between allowing innovation and protecting consumers from the bad actors within the space.
Author: Bronwen Latham
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