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:
Three issues were investigated, all of which were Upheld.
Ad description
A paid for Google search result, for a Barcelona Football Club non-fungible token (NFT) being sold at Sotheby’s and seen in July 2022. The ad featured the text, “July 29, 2022 – NFT Johan Cruyff. Don’t miss the live auction. The first NFT Masterpiece of FC Barcelona. Premiere July 29th. Johan Cruyff’s “impossible goal” in 1973. Immortalized and offered as an exclusive NFT”.
Issue
The ASA challenged whether the ad was misleading because it didn’t make clear:
1. the risks associated with Non-Fungible Tokens (NFTs);
2. that auction house fees, sales tax and third-party wallet transfer fees applied; and
3. that there were significant restrictions on ownership rights.
Response
1. Barcelona said that Non Fungible Tokens (NFT) were not financial products. They said they were not defined as restricted activities by the FCA, unlike some security tokens or e-money tokens, and so the purchase of an NFT could not be considered an investment. In addition, the NFT was offered as a collectible and not an investment and so the product should not be considered under the financial rules of the CAP Code.
They explained that Barcelona understood the novelty of NFTs and therefore sought to provide consumers with significant information regarding the purchase of the NFT. For that reason all risks regarding the NFT were explained in Sotheby’s Conditions of Sale.
They said the ad only appeared between 20 and 29 July 2022 and had not been shown since.
2. & 3. They said that any Google ad allowed 30 text characters in the title and 90 in the body of the ad. The disputed ad used the maximum number of text characters and contained the minimum information possible. They therefore could not see how any further information could have been included in the ad.
They said that the Conditions of Sale also laid out all the conditions of purchase including the buyer’s premium, the overhead premium and the limits of ownership rights. The limits of ownership rights were further explained in the terms and conditions on the Barcelona website.
Assessment
1. 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.
NFTs were an unregulated cryptoasset that required the owner to open and maintain a cryptowallet. Given the risks and complexities associated with cryptoassets the ASA considered this was material information that consumers would want to know before engaging with NFTs.
The ad promoted an “exclusive” NFT that could be purchased via an auction. We noted Barcelona’s comments that the NFT was a collectible and therefore not a financial product. We recognised that consumers might purchase NFTs by way of auction for different purposes as was the case with auctions for physical artwork. For some consumers the primary motivation might be to collect NFTs that fulfilled their personal interests. Consumers might also purchase NFTs to fulfil both personal interests and to acquire something that had a store of value that they hoped would hold or increase in value over time and for other consumers the motivation might be purely to acquire NFTs as an investment opportunity. For many consumers the motivation to purchase an NFT would fulfil a number of these aims at the same time.
However, we noted that NFTs could be bought, held and sold as an investment, even if they were not directly marketed as a product that could generate a return. We further understood that regardless of the range of reasons a consumer might have for purchasing an NFT, they were in all cases a volatile, unregulated cryptoasset, subject to frequent changes in value which could potentially lead to large losses.
Because the ad did not include any risk warning making consumers aware that the value of NFTs could go down as well as up, or that they were an unregulated cryptoasset we concluded that the ad was misleading.
On that point the ad breached CAP Code (Edition 12) rules
3.1
3.1
Marketing communications must not materially mislead or be likely to do so.
and
3.3
3.3
Marketing communications must not mislead the consumer by omitting material information. They must not mislead by hiding material information or presenting it in an unclear, unintelligible, ambiguous or untimely manner.
Material information is information that the consumer needs to make informed decisions in relation to a product. Whether the omission or presentation of material information is likely to mislead the consumer depends on the context, the medium and, if the medium of the marketing communication is constrained by time or space, the measures that the marketer takes to make that information available to the consumer by other means.
(Misleading advertising),
3.9
3.9
Marketing communications must state significant limitations and qualifications. Qualifications may clarify but must not contradict the claims that they qualify.
(Qualification) and
14.4
14.4
Marketing communications must make clear that the value of investments is variable and, unless guaranteed, can go down as well as up. If the value of the investment is guaranteed, the marketing communication must explain the guarantee.
(Financial products).
2. & 3. Upheld
The CAP Code stated that marketing communications must not mislead the consumer by omitting material information and must state significant limitations and qualifications.
We understood that the purchase of the NFT was subject to paying Sotheby’s a buyer’s premium (25% of the hammer price), sales tax, an overhead premium (1% of the hammer price) and a gas fee to transfer the NFT to a digital wallet. In addition, anyone who bought the NFT did not have intellectual property rights for the image, could not display it for commercial purposes or modify it in any way. Therefore, the fees and limitations on ownership were relevant to the ad and we considered material information that consumers would want to know upfront. While we acknowledged Barcelona’s comment that paid for Google ads did not contain sufficient space to include the requisite warnings, we understood that if such ads did not have the necessary space then they were not the correct medium for promoting this particular NFT.
For those reasons, because the ad omitted material information, we concluded that the ad was misleading.
On those points, the ad breached CAP Code (Edition 12) rules
3.1
3.1
Marketing communications must not materially mislead or be likely to do so.
and
3.3
3.3
Marketing communications must not mislead the consumer by omitting material information. They must not mislead by hiding material information or presenting it in an unclear, unintelligible, ambiguous or untimely manner.
Material information is information that the consumer needs to make informed decisions in relation to a product. Whether the omission or presentation of material information is likely to mislead the consumer depends on the context, the medium and, if the medium of the marketing communication is constrained by time or space, the measures that the marketer takes to make that information available to the consumer by other means.
(Misleading advertising),
3.9
3.9
Marketing communications must state significant limitations and qualifications. Qualifications may clarify but must not contradict the claims that they qualify.
and
3.10
3.10
Qualifications must be presented clearly.
CAP has published Advertising Guidance on Misleading advertising: use of qualifications.
(Qualification).
Action
The ad must not appear again in its current form. We told FC Barcelona that their advertising must make clear the risks of NFTs by stating that they were an unregulated cryptoasset and that their value could go down as well as up. They should also not omit material information regarding fees and charges on their platform and limitations of ownership for the NFT.
