Background
On 8 October 2023 the FCA took over the regulation of ads for ‘qualifying cryptoassets’ – cryptoassets that are transferable and fungible, including cryptocurrencies and utility (fan) tokens – and introduced new rules. However, cryptoassets as a product remain unregulated. As of this date, complaints about misleading non-broadcast advertising for qualifying cryptoassets will be referred to the FCA for their consideration. The new rules do not cover cryptoassets that are non-fungible, such as Non-Fungible Tokens (NFTs), or Limited Payment Tokens that can only be redeemed with the issuer and used for the payments of specific goods and services, such as non-monetary customer loyalty points, and the ASA will continue to regulate all ads for these products.
Summary of Council decision:
Two issues were investigated, both of which were Upheld.
Ad description
A paid for display ad for eToro, a stocks and cryptocurrency trading platform, seen on 27 August 2021 on the Yahoo Finance website. The ad included text which stated “Invest in the world’s top crypto’s with one click” and “Discover eToro’s unique BitcoinWorldwide offering, a ready-made portfolio, holding the world’s leading cryptoassets”.
Issue
The ASA challenged whether the ad was:
1. irresponsible because it took advantage of consumers’ inexperience or credulity; and
2. misleading because it failed to illustrate the risk of the investment.
Response
1. & 2. eToro (UK) Ltd said the advertised product was a ready-made investment portfolio containing unregulated cryptocurrency assets. eToro said that while the product was unregulated, they aimed to include a prominent risk warning to highlight the lack of regulation for cryptocurrency and the perceived level of risk associated with cryptocurrency assets. They acknowledged that in this instance the appropriate risk warning was missing owing to a lapse in their review process.
They believed that their ad did not suggest that cryptocurrency was straightforward and for everyone. They explained that the term “one click” referred to the efficiency of having a ready-made diversified cryptoasset portfolio, in contrast to the time it took to create a bespoke portfolio, and so did not make a comment on the simplicity of the cryptocurrency.eToro said that paid-for ads did not have the necessary characters to allow an advertiser to list every feature, including risk factors, of their product. They said that any consumer who used their service would be presented with the relevant product information to make an informed decision. In addition in their correspondence with the Financial Conduct Authority (FCA) the issue of tax implications in financial promotions was not raised or discussed. Further to this, when considering the Perimeter Guidance Manual (specifically PERG 8.4) and the Conduct of Business Sourcebook (specifically COBS 4.5A), there was no regulatory basis for Capital Gains Tax (CGT) to be included in a financial promotion. They explained that if such information was needed it would also be seen with traditional financial products, but they understood there was no requirement for those.
eToro said they were not tax advisors and at no point during the customer journey did they dedicate or distinctively provide any advice about the tax treatment of any of their products or services to their clients. The only references to tax treatment were made in their Terms and Conditions where they recommended that clients seek independent tax advice.eToro said that as an online firm, their users were from many different geographic regions. Therefore they believed it was irresponsible and misleading to present tax information to a global audience that was only relevant to the UK.
They explained that despite the product being unregulated they ensured that it was designed and distributed appropriately, considering the interests of users and addressing any potential harm that could have occurred. In addition to that they offered a range of online tools that allowed users to expand their financial knowledge, trade risk-free on a virtual platform and develop their risk-management knowledge.
They acknowledged there had been a breakdown in their review process which meant, in this instance, the appropriate risk warning did not appear. They had contacted the relevant marketing team to remove the ad and ensure it was no longer running. They had also reiterated to the relevant teams the need for a consistent and ongoing approach to financial promotions. They said they would also be conducting a full audit of their paid-for ads, making any necessary changes and removing any non-compliant ads.
Assessment
1. Upheld
We acknowledged eToro’s explanation that their product was an existing cryptoasset portfolio, as opposed to one that had to be individually constructed by the consumer, and that the claim “Invest in the world’s top crypto’s with one click” highlighted the efficiency of the portfolio, rather than suggesting that cryptocurrency itself was simple. However, we understood cryptocurrency investment itself was sophisticated and complex, subject to frequent change in value and one that could potentially lead to large losses. In the absence of any other information to the contrary, we considered that consumers would interpret the overall impression from the ad to be that investment in cryptocurrency was simple and suitable for anyone, even those with limited knowledge of the sector and regardless of their personal financial circumstances.
We noted that eToro had discussed with the FCA the financial promotions, and their comments that the FCA had not raised the issue of any implications for consumers who became liable for CGT charge as a result of investment gains in cryptocurrency. We noted eToro’s understanding that there was no current regulatory basis to include this information. We considered, however, that the cryptocurrency product offered by eToro in the ad was not regulated by the FCA and therefore not subject to the FCA’s financial promotions rules. We also considered that consumers would be less likely to be familiar with cryptocurrencies than with other well-established investments such as ISAs or shares. Therefore most consumers were unlikely to be aware that CGT had to be paid on profits in excess of the annual CGT allowance from investing in cryptocurrency, in the same way they would for more traditional investments.
We accepted that eToro had a global user base, and information about CGT was only relevant to consumers from the UK. However, the ad was a paid for display ad on the Yahoo Finance website, seen in the UK and as such was targeting UK consumers. Therefore it was incumbent on eToro to target UK consumers with the relevant information about CGT and if that was not possible to make clear in the ad that CGT tax only applied to the UK.
We acknowledged eToro’s comments that they would have included information about tax within the Terms and Conditions on the website and they had to be read by all clients before signing up to the platform. However, the ad did not contain any information that CGT could be payable on profits from investing in cryptocurrency, and we considered the potential tax implications were therefore not made sufficiently clear to consumers considering investing in cryptocurrency to enable them to make an informed decision.
For those reasons we considered that the ad took advantage of consumers’ inexperience or credulity by suggesting that investing in cryptocurrency was simple and suitable for anyone regardless of personal financial circumstances or understanding of the product and by not making clear that CGT could be payable on profits from investing. We therefore concluded the ad was irresponsible and breached the Code.
On that point, the ad breached CAP Code (Edition 12) rules 1.3 (Social responsibility), and 14.1 (Financial products).
2. Upheld
The CAP Code required that marketing communications for investments made clear that the value of investments was variable and, unless guaranteed, could go down as well as up, and also that significant limitations and qualifications were stated and presented clearly. We understood that cryptocurrency was a volatile investment, subject to frequent change and one that could potentially lead to large losses.
We noted eToro’s response that the lack of qualification was an error made during the review process and they had taken steps to include the relevant information in the future. Nevertheless, because the ad did not include any risk warning making consumers aware that cryptocurrency could go down as well as up, or that the cryptocurrency was unregulated in the UK we concluded that the ad was misleading.
On that point the ad breached CAP Code (Edition 12) rules 3.1 and 3.3 (Misleading advertising), 3.9 (Qualification) and 14.4 (Financial products).
Action
The ad must not appear again in the form complained about. We told eToro (UK) Ltd to ensure that they did not irresponsibly take advantage of consumers’ lack of experience or credulity by implying that cryptocurrency investment was straightforward or accessible to everyone regardless of personal financial circumstances or understanding of the product and by not making clear CGT could be due on cryptocurrency profits. We also told them to ensure that their future ads made sufficiently clear that the value of investments in cryptocurrency was variable and could go down as well as up and that cryptocurrency was unregulated in the UK.
