The Advertising Regulatory Board (ARB) has added rules to its code of best practice governing how the cryptocurrency industry markets digital assets in an attempt to protect consumers from misleading information.
The authority added a new clause to the Code of Advertising Practice saying promotional material must expressly state that investing in crypto assets could result in capital loss and that the overall message of adverts must not contradict the warnings. Advertisements for a particular crypto asset service or product must also be easily understandable and give a balanced message about projected returns, features, benefits and risks.
The added clause further states that references in adverts about the past performance of crypto assets must make it clear that this is not indicative of future performance. Adverts by crypto asset service providers who are not registered credit providers should not encourage the purchase of the digital tokens on credit and where influencers are used they must restrict themselves to providing only factual information rather than giving advice.
“This is a wonderful example of an industry that sees the harm that could be done in its name and steps up to self-regulate the issues without being forced to do so by the government,” said Gail Schimmel, CEO of the ARB. “This has been an exciting project and we know that it will result in better protection for vulnerable consumers.”
Crypto assets have exploded in popularity in recent years despite being prone to extreme price volatility, cyber attacks that have bankrupted entire exchanges, as well as blatant fraud and use by criminal syndicates. Bitcoin, the cryptocurrency with the largest market capitalisation, has seen its price plunge from a record high of more than $68,000 in November 2021 to $22,866 in Monday trading.
The volatility of the asset class — as well as the controversy that has become synonymous with it — has attracted the scrutiny of regulators who are increasingly concerned about its impact on unsuspecting investors as well as its use in illicit financial activity. Legendary investor Warren Buffett infamously described bitcoin as “rat poison squared” while JPMorgan CEO Jamie Dimon once labelled it a “hyped-up fraud”.
‘Realistic expectations’
In late 2022 SA’s Financial Sector Conduct Authority (FSCA) declared that crypto asset service providers will have to apply for a licence in the second half of 2023. The decision came after the authority designated digital assets as financial products under the Financial Advisory and Intermediary Services (FAIS) Act in an attempt to bring the sector under greater regulatory control.
“Rules around ethical advertising are nonnegotiable for us as an industry,” said Marius Reitz, the GM for Africa at local crypto platform Luno. “We don’t want rogue advertisers making claims that mislead vulnerable consumers about the reality of crypto investment. It is important to us that consumers enter this exciting market with their eyes open and their expectations realistic.”
Luno was reprimanded by the UK’s advertising watchdog in 2021 for a misleading campaign that failed to warn consumers of the risks associated with investing in digital assets. The Advertising Standards Authority rebuked Luno after complaints about a series of adverts it placed at UK tube stations and on London buses, which carried the words, “If you’re seeing bitcoin on the Underground, it’s time to buy”.
The slogan was deemed to be an attempt to take advantage of consumers’ inexperience while failing to clearly illustrate the potential risks involved in crypto investing.
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