A one-off or a new phase of global regulation?

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A one-off or a new phase of global regulation?


Over the last week, regulators in three major jurisdictions across two continents introduced new rules governing cryptocurrency-related promotions and advertisements. Citing consumer risks associated with digital asset investments, authorities in the United Kingdom, Singapore and Spain tightened the requirements around crypto firms’ marketing messaging and customer recruitment practices. While some experts view this emerging trend as a sign of a new global phase of cryptocurrency regulation, questions about the efficiency and universal applicability of this approach persist.

New measures

In the United Kingdom, Her Majesty’s Treasury issued a report summarizing the results of a public consultation on crypto-asset promotions, published in July 2020, as well as the government’s further steps in bringing such promotions within the regulatory perimeter. The key takeaway here is that crypto-related marketing messages are to be included in the scope of the Financial Promotion Order, meaning that the same rules will apply to them as those governing promotions of traditional financial products.

The National Securities Market Commission, Spain’s chief securities regulator, announced a new set of requirements that will apply to digital asset firms targeting 100,000 people or more with their ads, as well as those relying on social media influencers to promote their products and services.

In both the U.K. and Spain, regulators will require crypto promotions to abide by the principles of clarity and fairness while also prominently featuring risk disclosures. Ads’ sponsors will also have to either seek pre-approval (U.K.) or notify the authorities (Spain) of the upcoming campaigns.

The guidelines issued by the Monetary Authority of Singapore feature even more severe limitations. Essentially, the regulator will allow digital asset service providers to advertise solely on their own platforms, while physical ads in public spaces or using third parties such as social media influencers are entirely off limits.

Drivers of the new approach

Up until recently, regulators largely afforded crypto firms a wide latitude as far as promotional activity was concerned. If anything, it was big tech firms that experimented with censoring crypto-related ads on their platforms. Now, financial regulators are moving into the front seat.

Nathan Catania, partner at digital asset firm XReg Consulting, sees this development as a sign of a shifting regulatory landscape. Catania commented to Cointelegraph:

Jurisdictions that have ironed out AML/CFT regimes are now looking at other prominent crypto risks and it is clear that consumer protection is high on the agenda. Many large crypto players have been ramping up advertising campaigns in the last year or so and this is drawing the attention of policymakers and regulators who will want to ensure that these adverts are not misleading consumers.

In an XReg’s report on the topic, Catania and his colleagues further argue that the crypto industry players “can expect regulatory authorities in other countries to follow suit in the coming months,” noting that the wave of restrictions on crypto promotions can represent the “second phase of crypto asset regulation,” focused on consumer protection.

Indeed, one way to look at the intensifying regulatory attention to digital asset promotions is that there exists a logical sequence of measures to which governments assign varying levels of priority. Another interpretation seems feasible as well, whereby authorities simply react to an emerging reality, regardless of whether they consider the more fundamental regulatory boxes successfully checked.

Naturally, the growth and mainstreaming of the digital asset space in recent years resulted in crypto businesses expanding their outreach to audiences far beyond the original core of the movement. While the exact numbers are difficult to pin down, it is clear that in the past year the volume of crypto ads across many countries and platforms — from Indian TV to London’s public transport — has massively increased.

In the light of these dynamics, as regulators’ thinking goes, it is likely that people with insufficient understanding of crypto as an asset class will get exposed to bad-faith promotional messages. Some of them could then be tempted to invest or otherwise participate in digital finance without being fully aware of the risks.

A global trend?

Reliable data on the effects of the new restrictions on crypto promotions is unlikely to appear anytime soon, and at this point it is impossible to tell whether it will have major effects on people’s financial wellbeing or crypto companies’ bottom line.

Changpeng Zhao, CEO of crypto exchange Binance CEO, opined that the growing trend will not affect the demand for digital asset products because word of mouth is the primary marketing tool in this space.

It is also not warranted that the regulatory concern for cryptocurrency promotions will be equally distributed geographically. For one, in the United States, there are currently few signs of crypto ads being in government watchdogs’ crosshairs.

Raul Garcia, financial services principal at Florida-based accounting services firm Kaufman Rossin, noted to Cointelegraph that in the United States, regulatory focus is on taxation and investor protection, whereas promotional messages remain outside of the scope of the authorities’ attention. Garcia commented:

Everywhere you look in the U.S. there’s something about crypto, they’re advertising […] And I really don’t see any strong resistance, any limit to crypto promotion or anything like that. Too much money to be made!

The difference between the jurisdictions ramping up cryptocurrency ads oversight and the U.S. can be attributed to the heightened focus on consumer protection characteristic of many European nations and Singapore versus the American free-market focus. All other regulatory considerations held equal, more relaxed rules for digital asset promotions could make the U.S. a more attractive destination for crypto companies in the future.