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 digital poster for Kraken, an online cryptocurrency exchange, seen in August 2021 at London Bridge station. The ad began with text that stated for one second, “Warning: Cryptocurrency can be a highly volatile asset class. Please seek advice from an independent and suitable licensed financial advisor before purchasing …The services provided by Kraken are unregulated activities in the United Kingdom. In particular, the Financial Ombudsman Service or the Financial Services Compensation Scheme do not apply to the activities carried on by Kraken and you will have no recourse to these services in the event of a complaint”. The ad then ran for 19 seconds and included text which stated “Kraken” and “Buy Bitcoin & Crypto”. Subsequent slides included text which stated “Buy 50+ crypto in minutes Get started with as little as £10”, “Build digital wealth and buy crypto on-the-go” and “Check real-time prices”.
Issue
The ASA challenged whether the ad was:
1. misleading because it failed to sufficiently illustrate the risk of the investment; and
2. irresponsible because it took advantage of consumers’ inexperience or credulity.
Response
1. Payward Ltd t/a Kraken said that they were not a broker, intermediary, agent or advisor but they understood the importance of making consumers aware of the risks of investing in cryptocurrency. To that end they had included a disclaimer in the ad that they said highlighted the volatility of cryptocurrency, the recommendation that consumers speak to an independent financial advisor before investing and that purchasers of cryptocurrency would not have the protection of the Financial Services Compensation Scheme. They believed the warning was clear, intelligible, unambiguous and timely. Kraken believed the warning contained sufficient information and was shown at a time where it had engaged the viewers. They said the warning text was clear and of equal size to the text in the rest of the ad and that it was therefore readable and sufficiently prominent for consumers. Kraken said the warning text explained that cryptocurrency was volatile and that the services provided by Kraken were unregulated and as such consumers were not able to access services ordinarily available to regulated financial products.
Kraken explained that the risk warning contained the word “cryptocurrency” and the next screen clearly referred to “Bitcoin” and “Crypto”. They therefore believed consumers would see a clear link between the risk warning and the remainder of the ad.
Kraken provided Financial Conduct Authority (FCA) research into consumer opinions on cryptoassets. They highlighted that the research showed 96% of participants who knew of cryptocurrencies but had never bought them were aware that the product was unregulated. They said this was an overwhelming majority and evidence that consumers were aware that cryptocurrency did not have the protections that came with some other investments.
Kraken said the research went on to show that of those participants who had previously bought cryptocurrency, and either still held them or had sold them, only 12% believed that the product had financial protection. This showed that 88% of users were aware of the lack of financial protection. In addition the research showed that 78% of UK adults knew of cryptocurrency and so awareness of cryptocurrency was high in the UK. They said that the FCA research was a reliable guide to the average consumer’s knowledge of cryptocurrency regulation.
2. Kraken said the warning also stated consumers should seek advice from an independent financial advisor before purchasing. Therefore it had made clear that cryptocurrency should only be entered into with the appropriate guidance.
Kraken explained that the claims “Buy 50+ crypto in minutes Get started with as little as £10” and “Build digital wealth and buy crypto on-the-go” related to the product’s functionality, accessibility and usability and appeared after the clear risk warning. They said that having included a risk warning, it would be normal marketing activity to promote the product's functionality, accessibility and usability - factors which Kraken believed fairly distinguished them to the benefit of consumers. There was no intent to take advantage of consumer’s inexperience or credulity, which was demonstrated by the ad’s warning that told consumers to speak to an independent financial advisor before investing.
Kraken said that the claim “Buy 50+ crypto in minutes” was intended to highlight that a consumer could access more than 50 cryptocurrency listings on their platform. They explained it did not mean that you could purchase more than 50 cryptocurrencies in minutes, which was clearly not practicable, and Kraken did not believe that consumers would interpret the claim as such.
Kraken stated the claim “Get started with as little as £10” was accurate and highlighted that their product was relatively accessible because it did not impose artificial barriers to entry, such as a high minimum investment threshold. They said that in tandem with the prominent warning at the start of the ad consumers would have understood the claim to have been about how the platform worked and not that investing was simple.Kraken said that the claim “Build digital wealth and buy crypto on-the-go” referred to the ability to use Kraken on a mobile phone and this had been made clear by the frequent inclusion in the ad of images of the phone app on a mobile phone. The ad also ended by referring consumers to the app in the Apple App Store and Google Play store, and Kraken said this made clear that the claim "on-the-go" would be interpreted by consumers as referring to the mobile usability and accessibility of the product.
Kraken explained that both the claims “Get started with as little as £10” and “Build digital wealth and buy crypto on-the-go” had been shown close to the claim “Check real-time prices”. They therefore believed consumers would have seen the claims as referring to how the service worked and the convenience it gave to the investor. They did not believe consumers would have concluded that the claims meant that cryptocurrency trading did not require careful thought and consideration.
Kraken said there was no requirement to include information on ads for regulated investments that tax could be paid on investment gains. Kraken said they were also not aware of this being mentioned in any official and applicable guidance at the time the ad was live, nor was including tax information about investments, whether cryptocurrency or otherwise, typical market practice. They said that the average consumer would be aware that profits from cryptocurrency, or any other financial product, would be subject to tax in the usual way. They did not believe that it was material information and so they saw no clear reason why cryptocurrency ads should be subject to the requirement.
Kraken said that the ad ran for a one-week period from 16 August 2021 to 22 August 2021 and therefore was no longer live.
Kraken said they had since taken a number of proactive steps to ensure this issue did not arise again in future ads, including temporarily pausing all instances of similar ads, forming a cross-disciplinary team to consider the company's overall approach to consumer-facing disclaimers and rolling out changes to its disclaimers across different advertising mediums.
JCDecaux said the ad had not displayed information about potential risks for consumers for a sufficient amount of time. They said that the ad, however, had not taken advantage of consumers’ inexperience or credulity.
Assessment
1. Upheld
The ASA acknowledged Kraken’s willingness to make changes to their future ads and compliance processes.The CAP Code required that marketing communications for investments made clear that the value of investments were 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 initial capital invested in Bitcoin and other cryptocurrencies were subject to price fluctuations which could result in both losses and gains in value. The ad appeared in London Bridge station and was therefore likely to have been seen by a general audience including consumers who did not have financial knowledge and experience of cryptocurrency.
We understood that cryptocurrency exchanges in general were not regulated within the UK, and therefore consumers could not seek recourse to the financial protection offered by the Financial Services Compensation Scheme (FSCS) or wider regulatory protection by the Financial Conduct Authority (FCA) or the Financial Ombudsman Service (FOS). We considered consumers would expect that the exchange of cryptocurrency would be regulated, with legal protection in place for investment activities. We acknowledged Kraken’s comments that FCA research showed that 96% of the population were aware that cryptocurrency had no financial protection. However, that figure referred to people who knew of cryptocurrencies but had never bought them. The 12% of participants who were shown to have previously bought cryptocurrency, and either still held them or had sold them and believed that the product had financial protection was, we considered, evidence that at least a significant minority of consumers were confused about the financial protection available when buying cryptocurrencies. We further understood that the same research showed that 31% of crypto owners that saw a cryptocurrency advert were encouraged or led to buy as a result and those wrongly believing they had financial protection were much more likely to have been led/encouraged due to advertising, at 71% compared to the benchmark of 31%. That research therefore indicated significantly lower levels of understanding from those groups who would be most likely to respond to advertising of cryptocurrencies about the financial protections available. We also noted that the research only considered the issue of financial protection (offered by the FSCS) and not the broader question of whether consumers would be likely to understand that cryptocurrencies were unregulated by the FCA or FOS.
We acknowledged the content of the risk warning in the ad and that it stated cryptocurrency was “volatile” and “unregulated”. However, the risk warning only ran for one second at the beginning of a 20-second ad and we considered it presented the consumer with a large amount of information that would not be fully read or understood even if it was seen at all. We therefore considered that due to the presentation and brevity of the risk warning, consumers would not have the necessary time to comprehend the disclaimer in full and that they would not have been able to apply it to the information that followed for the cryptocurrency product.
Because the ad did not include a clear risk warning for consumers, making them 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).
2. Upheld
We acknowledged that the claims “Buy 50+ crypto in minutes Get started with as little as £10”, “Build digital wealth and buy crypto on-the-go” and “Check real-time prices” followed the risk warning, which Kraken believed had made clear the risks of cryptocurrency and the need to consult an independent financial adviser. While we accepted that the ad had included a risk warning, as discussed in point 1 above, we considered that consumers would not have had the time to comprehend the relevant information in the disclaimer, if seen at all, and that it therefore was not clear. We considered that consumers would understand the overall impression from the ad that investment in cryptocurrency was straightforward and suitable for anyone regardless of personal financial circumstances or understanding of the product.
We noted Kraken’s comment that traditional financial products did not include information about Capital Gains Tax (CGT). We considered, however, that cryptocurrency was a relatively new product and one that was currently not understood as fully as well established investments. Therefore the general public 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.
Because 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 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).
Action
The ad must not appear again in the form complained about. We told Payward Ltd t/a Kraken 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. We also told them 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, or by not making clear that CGT could be due on cryptocurrency profits.
