Despite immense popularity, the cryptocurrency market remains unregulated in many countries. This leaves investors vulnerable to various scams and frauds. Misleading advertisements is one such menace that can result in some investors losing their hard-earned money.
Sensing the urgency of the matter, some governments across the world have now planned to crack down on such misleading crypto advertising and bring in some rules to ensure gullible investors are not duped.
Before we take a look at the countries that have stepped up to protect consumers from such ad-based scams, let’s find out why these ads can prove risky.
What is the problem with crypto advertising?
Cryptocurrencies are highly volatile and trading in them, without a proper understanding of the market dynamics, can be risky, as is the case with many other assets. Advertising, particularly those promoting specific crypto products or companies, can prompt people to start trading impulsively, which can lead to losses.
As pointed out to Forbes by Kathy Kraninger, a former US Consumer Financial Protection Bureau director who recently joined the leadership team of crypto risk monitoring firm Solidus Labs: “Many of these ads are designed to create FOMO, and rightfully so, the crypto space is a very dynamic place with ample opportunity. However, it’s important to remember that FOMO often contributes to fraud, since it pushes consumers and investors to make decisions quickly.”
This could be the reason why countries like the UK, Spain, and Singapore have finally taken measures to regulate the crypto advertising space.
Find out what each country has done.
United Kingdom: The advertising regulator in the UK, the Advertising Standards Authority (ASA), has had spats with cryptocurrency firms like crypto.com regarding misleading ads. And now, the UK government is looking to introduce broader legislation. How will they do this? Rishi Sunak, Chancellor of the Exchequer, has outlined plans to bring cryptocurrency advertisements under UK’s Financial Conduct Authority (FCA) in line with other financial promotions.
In a nutshell, the UK government is trying to bring crypto-asset promotions “within the scope of financial promotions legislation”. The government also believes that the regulations they are bringing in will support the “innovation of the crypto asset market”. They do not want to ban any crypto trading activities outright. Instead, they are trying to implement much-needed regulations to crypto investment advertising in the country.
The government will bring forward this new legislation in a future parliamentary meeting. We are ensuring consumers are protected, while also supporting the innovation of the crypto asset market, Sunak said, per a PTI report.
Spain: While the UK government has been cracking down on advertising and promotions with individual crypto entities, Spain is taking a broader approach. It has implemented warnings for the crypto industry in the country as a whole.
The financial regulator in Spain, Comisión Nacional del Mercado de Valores (CNMV), has announced new crypto advertising rules that will take effect from February 17th, 2022.
These regulations will apply to celebrities, influencers, and crypto firms in the country. The regulations require crypto ads to contain a dedicated section that warns people about the risk of losing the money they have invested. All crypto ads will also need to provide additional links for supplementary information. This could be very helpful to new investors.
Singapore: Singapore has taken the most stringent measure to regulate crypto ads. They have effectively banned crypto advertising in public areas and social media that targets the general public.
The Monetary Authority of Singapore released a new set of “Guidelines On Provision Of Digital Payment Token Services To The Public.” on January 17th, 2022. This ban will also apply to banks and financial institutions licensed to provide crypto services, along with crypto exchanges in the country. The ban also prohibits crypto firms from paying third parties such as social media influencers or websites to promote their services or crypto trading.
Experts have been warning investors to exercise caution and avoid taking any hasty decisions while investing in cryptos. As Kraninger noted: “Like any other investment opportunity, consumers should execute due diligence and make thoughtful decisions on how and when to engage with crypto markets. As one example – they should ask does the platform take risk monitoring and compliance seriously?”