BUSINESS LAW & TAX ARB sets rules for crypto advertising

Crypto asset advertisements are nowregulated in SA, and crypto advertisers should beaware of the new requirements applicable to them.

Thebroadening ofthe ambit ofthe SAAdvertising Regulatory Board’sCode of Advertising Practice(ARB code) was announced on January 232023 andcomes hot ontheheels oftheFinancial Sector Conductof Authority’ s (FSCA’s) declarationlast October, announcingthe classification ofcrypto assets as a financial product.

The ARB code lays down a number ofgeneral principles relevant to all forms of advertising,and providesforprinciples applicableto specific categories ofadvertising in section III. According to the newly inserted clause 17 of section III, advertisements for crypto assets in SA must now clearly statethat investingin crypto assets mayresult in the loss of capital, and this warningmust notbecontradicted by the overall message of the advertisement.

Crypto advertisements must beeasily understandablefor theirtargetaudience and provide abalanced message aboutreturns, features, benefits andrisks. Ratesof return, projectsand forecasts mustbe supportedbyadequate substantiation, including how these are calculated.

Whereinformation ispresented aboutpast perfor- mance, itmust beclear the past performance is not indicative of future performance. Advertisers who are not registeredcredit providers must not encourage thepurchase ofcrypto assets on credit, though crypto asset providers are still able toprovide information regarding the payment methods that they offer.

Finally, “influencers” or “ambassadors” who promote crypto on their social media platforms are required to comply withthe rulesset out inthe SocialMediaCode. “Influencer” advertisements are increasingly popular and are notablymisleading because of their proliferation through social media. Influencers who promote crypto assetson behalfofcrypto asset service providers must present factualinformation andmaynot offeradviceon crypto trading and investing, or the benefits associated with trading and investing.

These new requirements put inplace bythe ARBhave come at a fitting time, as the growing demand for crypto assets over the past few years has broughtwith ita litanyof crypto asset-relatedscams, which lure vulnerable consumerswith thepromiseof prosperity. For instance, in 2022 itwas revealedthat Mirror Trading International (MTI) succeeded in performing the largest cryptocurrency scam in South African history, defrauding investing South African consumers of more than R4.7bn.

Cryptocurrency scams such as theseare typically thinly-veiled schemeswhich seekto beguilemillionsof

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unsuspecting consumers.

A particularly notorious case was the BitConnect scheme whichpresented itselfas a “high-yield investment programme”. In 2022, a grand jury indicted the founder of BitConnect for $2.4bnonthe basisthathe had orchestrated a global Ponzi scheme.Fraudulent investment programmes such asthese arenot limited to cryptocurrency,though, and nonfungible tokens have also been foundto be used for similar ends in the past two years.

Crypto scams typically require advertisements to succeed and gain adoption, typically targetinginexperienced consumers.These advertisements are easily spread through social media, and have a wide and susceptible audience, resulting in the need for better rules to regulate crypto advertising standards.

Compliance withthe ARB’s new advertising standards rules should be a priorityfor cryptoassetadvertisers, asfacing anARB complaint can result in an adverse finding by theARB, and thoughthese rulingsarenot binding, they are generally accepted by the advertising and advertisement publishing community. Perhapsmore importantly, an ARB complaint canresult inreputational consequencesfor crypto asset advertisers.

These changes tothe ARB code, along with the regulation of crypto assets announced in2022, area clear indication the crypto regulatory environment is gaining rapid momentum in SA.