Restrictions on cryptoasset promotions tightened in Singapore, Spain and UK

‘Digital payment token’ (DPT) service providers who facilitate the exchange of cryptoassets, as well as banks, payment providers and other financial institutions, face a ban on promoting their DPT services to the general public in Singapore, while Spain has moved to require advanced notice of cryptoasset promotions to be submitted to regulators prior to any mass advertising campaign, a rule that enters into force from the middle of next month.

In the UK, the government plans to update the regulatory remit of the Financial Conduct Authority (FCA) to enable it to scrutinise more cryptoasset investment adverts under its financial promotion rules, and the FCA has itself outlined plans to toughen its monitoring of such promotions.

Financial regulation expert David Hamilton of Pinsent Masons in London said: “Proposals to tighten regulation of cryptoassets in the UK have been in the works for some time, driven in large part by concerns raised by the Cryptoassets Taskforce, a body comprising the Treasury, FCA, and Bank of England, around three principal issues: consumer protection, market integrity, and financial crime.”

“The Taskforce was established to explore the potential impact of cryptoassets in the UK and reported its findings in October 2018. The report concluded, among other things, that cryptoassets posed a range of substantial risks to consumers, including the risk of purchasing unsuitable products without adequate information and the risk of being exposed to fraudulent activity. Misleading advertising and a lack of suitable information were identified as chief culprits in this regard; encouraging consumers to invest while failing to provide a fair, clear, and not misleading picture of the risks involved,” he said.

“The UK’s financial promotions regime is designed to mitigate the risk of misleading adverts, requiring that invitations or inducements to invest in regulated products should be approved by FCA or PRA-authorised firms prior to publication. By requiring authorised firms to grant approval, which should only be provided if the firms are satisfied the adverts meet the requisite standard of fairness and clarity, the regime promotes accountability, enabling regulators to take action against those over whom they have jurisdiction. Certain cryptoassets, including security tokens, are already within that regulatory perimeter. Utility tokens and exchange tokens such as bitcoin are, however, unregulated assets and it is these products which the proposed extension will affect, although the precise drafting of the final rules is yet to be finalised,” he said.

“The proposals may therefore be seen as a 'half-way house' measure. The unregulated nature of exchange tokens will not change, but the manner in which they are promoted and sold will change dramatically. Time will tell, but in practice the proposals may lead to a curtailment in cryptoasset advertising as authorised firms take a more risk-averse approach. However, the cross-border nature of cryptoassets will continue to create enforcement issues for regulators. As authorities continue to collaborate on their response to the proliferation of exchange venues and evolving consumer, market, and financial crime risks, we may see a more internationalised standard that would bring welcome clarity on these issues,” Hamilton said.

The tightening of restrictions in Singapore were made in the form of new guidelines issued by the Monetary Authority of Singapore (MAS). The MAS guidelines (4-page, 139KB) clarify that the DPT service providers subject to the new restrictions include payment institutions, banks and other financial institutions and applicants under the Payment Services Act.

According to an accompanying statement it issued, the scope of the DPT services subject to the new restrictions include buying, selling or facilitating the exchange of cryptoassets. The regulator also plans to apply the restrictions to services which transfer DPTs, provision of custodian wallet services, and facilitate the exchange of crypto assets without possession of moneys or DPTs when amendments to the Payment Services Act take effect.

The guidelines further state that the ban on DPT services advertising in Singapore applies to advertisements on public transport, public transport venues, public websites, social media platforms, and broadcast and print media. DPT service providers are also prohibited from hiring third parties such as social media influencers to promote their services and from providing public ATMs that sell tokens. They can only market or advertise on their own company websites, mobile applications or official social media accounts.

The Straits Times has reported that there are currently four DPT service providers licensed to operate in Singapore by MAS while around 100 license applications have been rejected and another 70 are still pending.

Bryan Tan of Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, said: “The new guidelines suggests the regulatory view that cryptoassets are not a mass market product and license applicants with a retail stance may be less favoured. The industry is also awaiting clarification whether non-trading cryptoasset activities such as accepting cryptocurrency for goods and services or crypto-linked credit cards will be subject to such advertising guidelines.”

In Spain, new rules, which will allow the National Securities Market Commission (CNMV) to monitor all types of cryptoasset advertising, were published in Spain’s official state gazette. The rules also toughen requirements around risk disclosure.

Under the rules, influencers and their sponsors will be required to notify the authorities in the event of mass advertising campaigns before posting cryptoasset promotions and further warn of the risks associated with investing in cryptoassets. The CNMV has the power to require the suspension or correction of advertising campaigns that do not comply with the rules, notwithstanding the CNMV's authority to apply penalties where appropriate, according to the applicable laws. According to a report by Reuters, advertisers and companies promoting cryptoassets will have to notify the CNMV at least 10 days in advance about campaigns targeting over 100,000 people. The rules apply to direct promotions by cryptoasset service providers as well as those carried out on their behalf by third parties. The new rules are due to come into effect in mid-February.

In February 2021, the CNMV and the Bank of Spain issued a joint statement highlighting the “high risk” involved in cryptocurrency investments. They cited their “extreme volatility, complexity and lack of transparency” as factors in that level of risk but said the "high price volatility" of the assets had been used in advertising materials to attract investors.

In the UK, the Treasury published its response (31-page, 304KB) to its earlier consultation on bringing certain cryptoassets into the scope of the Financial Promotion Order (FPO). The FPO specifies the investments and activities to which the UK’s financial promotion regime applies.

Some cryptoassets are already subject to the UK’s financial promotions regime, but the Treasury confirmed that it will bring currently unregulated cryptoassets within the scope of the FPO. This includes utility tokens and exchange tokens, including prominent cryptocurrencies bitcoin and ether. The activities of dealing in securities and contractually based investments, arranging deals in investments, managing investments, advising on investments and agreeing to carry on specified kinds of activity in the context of cryptoassets will now be subject to regulation. The Treasury has said these activities are “most associated with misleading cryptoasset promotion identified by the FCA”.

The FCA has separately proposed (186-page, 1.98MB) changes to its financial promotions rules for high-risk investments, including cryptoassets. The regulator plans a clampdown on inducements to high-risk investments, such as payments to new customers or ‘refer a friend’ bonuses. It also intends to strengthen the wording of risk warnings for advertisements and tighten pre-launch approval rules for promotions.

There will be a six-month transition period and the FCA plans to publish final rules in summer after the consultation period ends.