July 24, 2021

Cryptocurrency advertising should include visible warnings about its risks to protect the consumer


The National Securities Market Commission (CNMV) has focused on the advertising of crypto assets, such as bitcoin, and advances in its intention to restrict the messages that may appear in these campaigns. In recent months, platforms for the sale of this type of investment assets have proliferated and the CNMV intends to create a regulatory framework that avoids a lack of transparency and messages that attract investors who do not understand the risks they may have. For this reason, a draft regulation for the advertising of these investments has been opened for public consultation until August 31.


The CNMV plans to restrict the boom in cryptocurrency investment advertising

The CNMV plans to restrict the boom in cryptocurrency investment advertising

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“The shocking revaluations of some crypto assets have increased their attractiveness as an investment, which has been intensified by the numerous advertising campaigns that have been able to incite minority investors to invest in these new assets without having sufficient information about their nature and the risks they entail. “, explains the CNMV. In March, the Council of Ministers gave the CNMV the ability to regulate this advertising and it is in this context that the new regulation is developed, which, in any case, would be difficult to enter into force before the end of this year.

The standard developed by the stock market supervisor includes some obligations that will affect any type of advertising made on these crypto assets. The first of these will cause the ads to contain warnings about the risks of this investment. “Crypto assets are unregulated, may not be suitable for retail investors, and the entire investment may be lost.” This will be the message that should appear in commercial communications. Of course, it will not be worth hiding between the fine print at the end of the ad. “They will be included in the commercial communication, with a format and position that guarantees their relevance within the advertising piece and should not be included as secondary information or in footnotes,” the supervisory body concludes.

To this will be added that the company will be obliged to offer a link where consumers can access a detailed report of the risks involved in investing in these assets, under the warning of ‘Important to read’.

“Advertising on crypto assets must be clear, balanced, impartial and not misleading,” says the CNMV. To do this, it ensures that “a simple and easy to understand language” must be used and that it does not include biased or ambiguous information about the nature of these investments. It will force that, in the case of sponsored journalistic information, it is clear from the beginning that it is a commercial communication. In addition, it will require that there be coherence between the message of the advertising campaign and the risks that they will be required to report with the new standard.

The supervisory body intends to limit allusions to “high past returns”. In fact, if a period is chosen to report a large revaluation, the period before and after where a depreciation could have been observed should also be reported in equal size. The CNMV clarifies, yes, that returns will not be detailed for periods of less than one year. In addition, it should be stated “prominently” that past performance is not a reliable indicator of future performance. That is, its evolution in the past should not serve as a guide for the future.

Thus, the CNMV trusts that the regulations will avoid creating “disproportionate or false impressions or expectations” that result as an incentive to operate with the cryptoactive. The rule assumes that not all advertising media may include all the information requested, so it will force the inclusion of links and notices that lead to a detailed communication about the nature of these investments. Finally, the CNMV prohibits the inclusion of messages on the limitation of responsibilities of the company in question and will hold it responsible for complying with the rule on social networks when forwarding communications made by third parties (for example, influencers), even if the company has not generated this content.

The stock market supervisor goes into even the detail of the language. It indicates that in the case of using superlative or diminutive adjectives, “it must be based on factors or objective and verifiable data that allow to prove it.” The warnings must occupy at least one fifth of the ad, with a font or a reading rhythm that allows its understanding by the potential consumer.

The CNMV reserves the ability to request prior notification of any commercial campaign. Although he points out that it will only be mandatory for those of a massive nature (those that reach more than 100,000 people), he points out that it can be requested when deemed necessary. The companies will have to provide detailed information on the characteristics of the campaign (media used, time, etc.) and the information on the advertising pieces. After that, the CNMV may demand the cessation or modification of any of these campaigns if it understands that they do not meet the transparency requirements or do not include the required warnings.

Finally, the CNMV recalls the risks in this regulation that crypto assets have. In particular, it points out that these investments are not covered by client protection mechanisms such as the Deposit Guarantee Fund or the Investor Guarantee Fund. To this is added that large changes can cause everything invested to be lost or that there are no clear mechanisms on the formation of the price of these assets, as is the case with other investments. Links with cybercrime are also referred to in the CNMV circular, as well as that it is not yet a commonly recognized means of payment.

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