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 Facebook ad for Crypto.com, a payment and cryptocurrency trading platform, seen in July 2022, had text that stated, “Crypto.com NFT is now available in the Crypto.com App. Mint, collect, and trade NFTs and manage your crypto all in one place. Launch Crypto.comNFT from the App home screen and make a purchase via drops on the Marketplace. Sign up to Crypto.com/NFT now! Access Crypto.com NFT at your fingertips”. The ad included a video. The video had text that stated, “How to purchase NFTs in the Crypto.com App”. The video showed a phone displaying the Crypto.com app and step by step imagery of the app and how to purchase an NFT. Text stated, “Access Crypto.com NFT from the App’s home screen. You can purchase NFTs via Drops or the Marketplace. Tap on the NFT that you’d like to purchase. There are two purchasing methods: fixed price and auction. This will be shown in the NFT listing. For NFTs sold via an auction, submit your bid by tapping Place a bid. Enter a bid amount. Please note that all prices are in USD. Pay with your Crypto Wallet. Choose your preferred cryptocurrency to place and confirm your bid. Done! You successfully placed a bid. For NFTs sold at a fixed price, tap Buy Now. Pay with your Crypto Wallet. Choose your preferred cryptocurrency to complete your purchase. Done! You successfully purchased an NFT. Get Started with Crypto.com NFT”.
Issue
The ASA challenged whether the ad was misleading because:
1. it failed to illustrate the risk of investing in NFTs; and
2. it didn’t make clear that fees would apply.
Response
1. Foris DAX Global Ltd t/a Crypto.com said that they did not believe the NFTs available on their platform, which included artists’ work and sports collectibles, to be financial in nature. They understood that was supported by HM Treasury’s recent consultation paper that excluded NFTs from the scope of financial promotion reforms. They therefore believed NFTs should be exempt from the financial rules of the CAP Code and should not have to make clear that profits from cryptocurrencies were subject to Capital Gains Tax and that they were unregulated.
They acknowledged that recent ASA online advice did consider NFTs to be cryptoassets and subject to the financial rules of the CAP Code. However, their ad predated the advice and so they said it could not have complied at the time it was put out, as they believed that guidance had not yet been issued.
They said further that the ad only promoted their platform on which NFTs could be purchased and not specific NFTs. Therefore, even if the ASA’s financial rules applied to NFTs it would be unreasonable to request that the specific ad include limitations or qualifications regarding the risk of investing in NFTs.
2. Crypto.com said the ad did not refer to the platform’s selling capabilities and only mentioned the purchasing of NFTs, which did not incur a fee for any payment methods. Therefore, the need to mention fees in the ad was not relevant and any qualification would only confuse consumers.
They said when a customer had chosen to list an NFT for sale, they were given clear warnings on the associated fees. In addition, customers who chose to use the platform to mint their own NFT were also made aware of such fees before being able to use the service.
They confirmed the ad was no longer live.
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.
Since at least January 2019 the Financial Conduct Authority (FCA) had defined cryptoassets as, “cryptographically secured digital representations of value or contractual rights that use some type of distributed ledger technology (DLT) and can be transferred, stored or traded electronically”. The ASA understood therefore that NFTs were a form of cryptoasset, albeit currently unregulated by the FCA, that required the owner to open and maintain a cryptowallet. Given the risks and complexities associated with cryptoassets we considered this was material information that consumers would want to know before engaging with NFTs. In addition, we noted that NFTs could be used as an investment, even if they were not directly marketed as a product that could generate a return. The ad stated, “Mint, collect, and trade NFTs …”. We understood that consumers would interpret that claim to mean NFTs could be created, bought and sold on the platform and that the use of the word “trade” implied they could be exchanged with the intention of generating a profit. We considered therefore that the ad promoted NFTs on their platform as investments.
We understood that NFTs were a volatile cryptoasset, subject to frequent change and one that 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. 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 minting an NFT on the platform would cost a minimum of $3 and anyone who sold a self-minted NFT on Crypto.com’s platform, was liable for a “primary listing fee” of 1.99%. In addition, royalties for resales of NFTs created directly through the platform were charged at 10% to the creators.
We acknowledged Crypto.com’s comment that the ad only referred to purchasing NFTs, which incurred no fees, and so the stated selling fees were not relevant. However, the ad referred not only to collecting NFTs, but also the ability to “mint” and “trade” NFTs. We understood that trading referred to the selling of NFTs, which could incur fees. Further to that while minting applied only to the creation of NFTs, which in theory could be kept and never resold, it was likely that the significant majority of those who minted NFTs would do so to sell them on and they would be liable for the 1.99% “primary listing fee”, as well as the initial minting fee. We noted that customers would be given this information before minting or trading their NFTs. But references to “trade” and “mint” within the ad meant that the fees payable on minting and trading was material information that consumers would want to know upfront before purchasing an NFT.
For that reason, because the ad omitted material information, 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.
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 Foris DAX Global Ltd t/a Crypto.com 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.
