New advertising rules require warning label over crypto investments

The Advertising Regulatory Board (ARB) has introduced new rules warning crypto investors about the potential for loss of capital.

Crypto advertising must be simple to understand for the target audience, and give a balanced message about the returns, features, benefits and risks associated with the product or service.

The change to the board’s Code of Advertising Practice is aimed at protecting consumers from being misled by unethical advertisers and are the result of consultation and agreement with the cryptocurrency industry.

Industry players hope this will make it harder for scams such as Mirror Trading International, which promised returns of 10% a month, to gain traction.

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In terms of the new rules, advertising that mentions rates of return, projections and forecasts must be supported by adequate substantiation as to how these are calculated.

Advertisements must clearly state that investing in crypto assets may result in the loss of capital as the value is variable and can go up as well as down.

Crypto advertisers must also make it clear that the past performance is not indicative of future performance.

The rules state that any historical period or past performance “should not be presented in such a way that it creates a favourable impression of the advertised product or service”.

In addition: “Advertisements by crypto asset service providers who are not registered credit providers should not encourage the purchase of crypto assets on credit. This does not preclude advertisements providing information about the payment methods offered by crypto asset service providers.”

Rules for influencers

Another new rule deals with influencers or ambassadors who are often used to promote a crypto asset product or service. They may share factual information only, and may not offer advice on trading or investing in crypto assets, nor make promises as to the benefits or returns from investing.

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“This is a wonderful example of an industry that sees the harm that could be done in its name, and steps up to self-regulate the issues without being forced to do so by government,” says ARB CEO Gail Schimmel.

“This has been an exciting project and we know that it will result in better protection for vulnerable consumers.”

The ARB was set up by the marketing and communications industry to protect consumers through the self-regulation of advertising, including packaging.

Eyes open, rogues beware

“Rules around ethical advertising are non-negotiable for us as an industry,” says Marius Reitz, general manager for Africa at crypto exchange Luno, who spearheaded the project.

“We don’t want rogue advertisers making claims that mislead vulnerable consumers about the reality of crypto investment.

“It is important to us that consumers enter this exciting market with their eyes open and their expectations realistic.”

Teamwork

The rules were a collaborative effort between the ARB and crypto players such as Luno, AltCoinTrader and others to help develop rules for the industry to self-regulate the way it advertises to the South African public.

“Responsible advertising is a fundamental backbone to an ethical industry where consumer expectations are managed and the risks are clearly and unambiguously articulated,” says David Porter, GM at crypto exchange AltCoinTrader.

“Advertising in line within an agreed set of principles helps distinguish between firms that are operating in a sustainable way to those that are potentially scams,” adds Porter.

“Not only is this beneficial for consumers, but where firms abide by these codes data has shown that responsible advertising helps firms build better relationships with clients while improving trust, loyalty and ultimately customer retention.”

Legit players welcome the rules

The ARB’s decision to specifically include crypto in its advertising standards is welcomed as it lays the foundation to better protect consumers.

“After everything that has happened in the crypto space – from FTX’s fraudulent blow-up to Genesis’s more recent collapse – it’s more important than ever that consumers are protected from crypto-related scams and hyperbolic advertising promising unrealistic returns,” says Sean Sanders, CEO of crypto investment company Revix.

“We as an industry need to mature and rebuild trust with the public, which starts with advertising that’s fair and that is not misleading.”

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Sanders adds that crypto assets and blockchain are still new technologies with the potential to disrupt and revolutionise many industries. “It’s important that these innovations are accessible by the public with advertising that effectively communicates the inherent risks involved in investing in this space.”

Adds FiveWest CEO Omer Iqbal: “Crypto assets are providing exciting new opportunities, offering people a new way of transacting and investing – but it’s very important that consumers are not being sold products that are misleading or fraudulent.

“The new ARB rules are a step in the right direction, since consumers should be alert to the risks of misleading advertisements and be made aware of promises of fast or high returns, especially those that look too good to be true.”