Crypto challenge needs more than an ad man’s touch

Advertising is a powerful tool. The power of the UK advertising watchdog is less clear.

The Advertising Standards Authority is cracking down on cryptocurrencies, again. The problem is, no one else in the UK really is.

On Wednesday, the ASA formally reprimanded seven crypto companies for violating ad industry standards. He had already warned companies not to underestimate the risks of investing in a volatile asset class, misleading investors and trivializing cryptocurrencies in early July.

Papa John's promotion urging customers to "turn £ 10 pizza into Bitcoin" predates that warning by a couple of months. But all the other judgments published by the ASA refer to announcements published since mid-July.

Perhaps the standards expected of crypto advertisers were unclear, as the CEO of the Luno app has complained. The ASA's rulings should help clarify what it considers acceptable.

But these are not the announcements of an industry that is afraid of regulators. It remains a "wild West", what companies say about wanting to fulfill. The self-regulatory body of the advertising industry, which is not a specialist in complex financial services, is unlikely to strike fear in the hearts of companies. It lacks the power to punish directly, even if it can refer persistent offenders to the Competition and Markets Authority for more serious penalties.

There are many tough questions about how to regulate digital assets and who should do it. It's not as straightforward as saying, to accept a Luno ad from earlier this year, "If you're watching bitcoin on the subway, it's time to regulate."

But if you see ads for bitcoins on the subway, it's probably time for the financial watchdog to regulate them.

To be fair, the Financial Conduct Authority has been pushing for jurisdiction over cryptocurrency promotions for some time. At the moment, this is mostly not within the scope of the FCA's mandate. Government action is needed to expand the so-called perimeter of the FCA. A Treasury consultation on the subject was closed more than a year ago. In a fast moving industry, it is difficult to conclude that the UK government is keeping up.

However, it should be clear that regulating crypto ads will not be enough. And one lesson from the ASA's efforts is that it is important to choose the right regulator to take over.

There are those who argue that calling cryptocurrencies an investment dignifies it with a status it does not deserve. Peter Hahn, Emeritus Professor of Business and Finance and former Advisor to the Prudential Regulation Authority, argued in a letter to the Financial Times that it would be better to regulate cryptocurrencies like gambling, not investing.

The issue of FCA regulation lending credibility to cryptocurrencies and creating confusion about what is covered and what is not, is an issue that the FCA is well aware of. The watchdog's outgoing chairman, Charles Randell, made a speech in September on the risks of "token" regulation, in every sense of the word. The memory of the London Capital & Finance mini-bond scandal, where investors assumed that FCA regulation applied, not just to the company but to the product they were buying, is stark for both the regulator and the Bank of England. , which is now headed by the former. Head of FCA.

But treating cryptocurrencies like gambling is also not a satisfactory solution. An independent report on the regulation of the collapse of the betting company Football Index showed the dangers of fuzzy jurisdictional boundaries between financial and gaming watchdogs. The report found that the Gambling Commission was unaware of key parts of the "soccer stock market" business model and that the FCA was slow, inconsistent and poor in communicating with its regulatory colleague.

Binary options, fast bets on financial market movements, were also compared to the game Five years ago. It wasn't until they were transferred from the Gaming Commission mandate to the FCA that they were banned.

The FCA own evidence is that the proportion of investors equating cryptocurrencies with gambling is declining. Whether the financial watchdog likes it or not, cryptocurrencies have widespread credibility that cannot be discounted. The FCA will have to accept a bigger role. It is clear that coordinated international action is needed and crypto regulation is undoubtedly complex. But there is a danger of relying on unskilled regulators to clear up the mess in the meantime.

cat.rutterpooley@ft.com