Analysis Expert Blog

Following Facebook, Will Global Advertisement Regulators Refuse ICOs?

As crypto startups and ICO issuers bother about social media platforms cutting their advertisements, they could be missing an even more redoubtable threat – regulators.

Crypto entrepreneurs reeled late last month after Facebook declared it would forbid “misleading or deceptive” advertisements about financial goods and services, including bitcoin and ICOs. These stakeholders saw a critical advertising prospectus dry up, but according to some, this is not the end.

“The regulators will look at advertisements put out by the company. That’s always something they’re going to look at,” claimed Johanna R. Collins-Wood, an associate at Pepper Hamilton and member of the law firm’s blockchain team.

Others agreed and voiced concern about the industry where you never have to look too far to find suspicious ads.

Actually, crypto advertising is a excessively famous Wild West of sorts, where all token sales, legal or otherwise, are all competing for attention. And all the issuers and entrepreneurs in the space are still struggling with just what kinds of claims they can make in their marketing.

If the industry doesn’t act itself, regulators are willing to come knocking.

On February 22, France’s stock market regulator, the L’Autorite Des Marches Financiers (AMF), published an announcement about looking to curb advertising on cryptocurrency-tied derivatives.

And others may soon do the same. In accordance with Collins-Wood, some of the regulators that have already taken a more keen notification of the crypto industry as of late will definitely use advertising to create their cases.

For example, the Securities and Exchange Commission (SEC) Commodity Futures Trading Commission (CFTC), which held a joint Senate listening on cryptocurrency earlier in February, will look at whether firms have made rascally complaints in their advertisemnts, she claimed, adding:

“If they’re looking to bring a case against a company, they will certainly review all the public statements that the company has made and that would obviously include advertisements.”

“More blatant than others”

Beyond financial regulators looking at ads to create cheating cases, though, formal guidelines for advertisements and marketing are less clear at this point.

A lot of the regulators that oversee false advertising complaints have yet to declare any particular policies on the arising industry.

“There are a lot of shades of false advertising and misleading advertising. Some are more blatant than others,” claimed Carl Johnston, a corporate securities attorney at FisherBroyles LLP.

The fact is, last year, a crypto ad made the rounds on Facebook with a stolen logo from the New Zealand Herald newspaper and a picture of the former New Zealand prime minister John Key with a false citation saying he invested in bitcoin.

In Australia, the continent’s securities controller received more than 1,200 crypto scam claims, with one complaint detailing how an exchange advertised that it was an existing Australian firm to gain customer’s trust.

Although, maybe the most mainstream sample is that of Japanese exchange Coincheck, which ran a TV ad campaign touting, only to be hacked to the tune of $533 million not a long after this.

Several industry watchers have since accused Coincheck of reducing its security protections and criticized for scrimping on security spending in favor of lavish ads. Indeed, the CEO of SBI Holdings reportedly called the company “scum of scum” for the wasting.

As these examples pique regulators interest to the industry as a whole, some think advertising regulation is not far away, and looking to the regulations facing traditional firms is likely a good place to start for defining how those regulations will be laid down.

“We certainly do have laws against false and misleading advertising,” Johnston said.

Quiet for now

Even though Johnston didn’t have any understanding into whether the Federal Trade Commision, the government agency charged with overseeing these xlaims in the USA was still valid in this area.

He told CoinDesk:

“I follow pretty much everything about ICOs that I can and I haven’t seen the FTC’s name a lot.”

The FTC did not reply to requests for comment.

Also, advertising standards groups have yet to chime in on the subject. New Zealand’s Advertising Standards Authority told CoinDesk it had not received any crypto-related ad claims, and the UK’s ad standards body said they had received less than 10 cryptocurrency-related ad complaints so far.

A spokesperson from the UK Advertising Standards Authority continued, “And none have resulted in us finding grounds for an investigation.”

Even though the spokesperson did point to the Financial Conduct Authority (FCA) as the regulator in charge of financial advertisements, but when asked, the FCA said it has no position on crypto ads.

Talking about the tendency to make sure ICO tokens meet securities guidelines, Collins-Wood stated:

“Lawyers are telling clients to focus on offerings that are compliant with securities laws. When you do that, that actually opens up avenues for appropriate and compliant advertising and in many ways eliminates a lot of these issues.”

Effect on startups?

It looks like many are taking a wait-and-see approach.

For example, even though Russia’s equivalent to Facebook, VK, prohibited crypto ads last year, the social media platform lifted the taboo in August 2017, saying that the limitations were eliminated “to open even more opportunities for the active development of the cryptocurrency market.”

Having more than a million people on the social network following cryptocurrency communities, the company also said it would refuse crypto advertisements that violated its regulations by promoting unsupported warranties.

No other social network has taken a similar position yet. A Twitter spokesperson said it had no words on cryptocurrency advertising. And Google pointed to its existing policies on misleading advertisements, which it stated would apply to cryptocurrency.

However, even if social media platforms moved to tighten up their operations, it might have minimal impact on the ecosystem.

In accordance with M. Kanemitsu, CFO of bitFlyer, which ran both a social media and television ad campaign, the Facebook ban had minimal effects.

“Our understanding is that our TV commercials have contributed to a large increase in users,” Kanemitsu said.

As such, bitFlyer remains cautious about the complaints it makes in its advertising.

“We never advertise large returns, low risks, etc. like the advertising from other organizations. For our internal regulation, we look to existing self-regulatory agencies for other industries,” Kanemitsu said, adding:

“We are not legally restricted as to the contents of our ads, but we have constructed careful internal self-regulatory procedures that require us to avoid expressions that may be misleading, and we take ad review very seriously.”