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Cryptocurrencies – New Advertising Guidelines to Protect the Investors – India


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Tavaga Research

Why in news?

A new set of guidelines for NFTs and crypto exchanges has been issued by the Advertising Standards Council of India (ASCI). As per it, all Virtual Digital Assets (VDA) and services will be required to include prominent disclaimers under the new requirements. This has arrived after a series of discussions over the future of VDA and the associated risks. The guidelines have been launched in order to protect the investors from getting influenced by misleading ad campaigns. 

About the guidelines – 

As per the guidelines, any print, TV, radio, or digital commercial for a digital asset must include the following disclaimer: ‘Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. This disclaimer must be prominent and unmissable. For instance, the disclaimer shall occupy at least 1/5th of the advertising space in print/static format. Along with this, the guidelines have tried to ensure that the advertisements don’t include any word which might portray VDAs as regulated assets. It prohibits the use of the words “currency”, “securities”, “custodian”, and “depositories”, as consumers associate these with regulated products. For example, if a potential investor comes across a tagline for some specific cryptocurrency: ‘Future of the world of securities’. It is highly probable that the investor will consider the same under the header of ‘regulated securities’.  There are other points as well, related to the duration, size, font, color, background, and voice-over for the disclaimer in both audio and visual form. 

It is a common marketing strategy to showcase the products as a solution to some existing problem. The same is taken care of, by making sure that the VDAs or their trading are not showcased as a solution to money problems, “personality problems”, or carry statements that promise or guarantee profits. This has been done on the backdrop of many taglines which were falsely assuring great returns, such as ‘Value keeps on increasing’ and ‘Much Money, Take A Seat’. Next in the list comes the influencer marketing strategy, where the campaigns feature celebrities. ASCI has suggested that proper due diligence shall be done by the celebrities who are endorsing such assets or trading platforms. 

Consumer protection in the domain of investment – 

To get understand the guidelines thoroughly, it is important for an investor to understand the meaning of ‘misleading advertisement’ in the first place. The Consumer Protection Act, 2019 defines it as an advertisement that gives false information or guarantees with respect to the nature, substance, quality, quantity, or deliberately conceals important information. This has been applied to the ads related to VDAs, considering the exchanges were not representing the associated risks. ASCI goes one step ahead to protect the customers from financial risk by regulating the misleading advertisements that invite the public to invest money. Further, SEBI has been working towards protecting the investors by clearly restricting the financial advisors from delivering any official advice on digital . It will be forbidden for all stock exchange members until SEBI recognizes it as a ‘security’ (which includes Shares, scrips, stocks, bonds, debentures, debenture stocks, etc.).

Reflecting upon the guidelines- 

The regulatory bodies are focusing on protecting innocent investors by increasing scrutinization in every aspect. ASCI, through this set of guidelines, has tried striking a fine balance between protecting the investors and allowing the exchanges/platforms to run the business. This is a positive step that will give this place more validity and make marketers more accountable. The move will definitely help in education and creating awareness amongst the consumers but it is too early to comment on the impact on the brands. 

Having discussed the positive sides, it becomes imperative for us to take into account the criticism against the guidelines as well. Although the area of virtual digital assets is not regulated, the government has introduced special provisions for their taxation. Further, virtual assets have been incorporated in recent amendments to corporate laws as well. Hence, the disclaimer would negatively impact the already-damaged reputation of these assets, when the said technological advancement is now in the mainstream market. 

Conclusion – 

This move is in line with the other countries such as the UK and Spain. Both nations have enacted rules/guidelines to combat false ads about cryptocurrency investments, which might result in cryptocurrency investors losing money. The steps taken in this direction on a global level, along with the recent surge in marketing campaigns by cryptocurrency exchanges have compelled India to introduce similar guidelines. Lately, the cryptocurrency exchanges have been making catchy advertisements, which are inviting people to invest in cryptocurrency. Cryptocurrency is being portrayed largely as a simple, safe, and regulated asset, which ends up ignoring the volatility and other risks associated with this technology. 

Furthermore, there is no comprehensive legal framework for protecting the investors in VDAs as well. To build upon this, it is important to discuss the case of a few debt schemes of Franklin Templeton Mutual Fund. Due to bad performance and liquidity constraints by the portfolio companies (along with not-so-good judgement shown by the fund managers) held by Franklin Templeton in its 6 debt schemes, Templeton had to temporarily freeze these 6 schemes. However, SEBI’s timely intervention ensured that investors got their money back as SBI (NS:) Mutual Fund was assigned the responsibility of giving back the proceeds (collected from portfolio companies of the 6 schemes) in tranches and putting an end to this fiasco. However, there is no proper solution or a redressal mechanism for the VDAs, unlike for regulated investment sources like equities, bonds, mutual funds, etc. This, perhaps, demands extra protection for customers dealing with these unconventional sources. 

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