CNMV regulates crypto-asset advertising

CNMV regulates crypto-asset advertising

About a year ago, we informed you in a blog post about the approval of a new regulation empowering the National Securities Market Commission (hereinafter, the “CNMV“) to regulate the advertising of crypto-asset investments.

Almost a year later, the CNMV has this week presented a Circular on the advertising of crypto-assets presented as investment objects, which defines rules, principles and criteria to which the commercial communication and advertising activity of crypto-assets and digital currencies must adhere.

This document, which has already been published in the BOE, seeks to provide greater protection for investors by ensuring truthful, understandable and non-misleading advertising of these products.

This is a pioneering initiative in our environment

This CNMV Circular is a pioneering initiative, both in Spain and at European level, as to date there is no similar text in any of the markets around us.

It is important to bear in mind that the regulation only addresses the regulation of cryptoasset advertising but does not regulate cryptoassets themselves, whose regulation is being addressed by the European Commission through the Regulation on the Regulation of Cryptoasset Markets (MiCA), which has not yet entered into force.

The advertising activity regulated in Circular

According to Rule 3 of the Circular, advertising activity should be understood as “any advertising aimed at investors or potential investors in Spain in which cryptoassets are implicitly or explicitly offered or drawn to their attention as an investment object”. It is understood that a cryptoasset is offered or attention is drawn to it as a possible object of investment “when its acquisition is promoted or any reference is made to its profitability, price or value, current or future, that could suggest an opportunity to invest in said cryptoasset, even though they may eventually be used as a medium of exchange”.

However, excluded from the scope of the above definition are advertising activities relating to:

• Cryptoassets that are in the nature of financial instruments, which are subject to their own regulation.
• “Utility tokens“: those cryptoassets which, due to their characteristics and nature, are not susceptible to investment, provided that there is no expectation of revaluation.
• Cryptoassets whose sole use is digital access to a product or service and which comply with the requirements established by the Circular.
• So-called “NFTs“, i.e. cryptoassets that are unique and not fungible with other cryptoassets, under the requirements set out in the Circular.
• White papers on new issues.
• Corporate advertising campaigns containing exclusively generic information about a regulated entity or its corporate purpose, intended to be made known to the public, subject to certain limitations.
• Certain documentation or information provided in presentations intended solely for analysts or institutional investors.
• Publications issued by financial analysts or independent commentators, which are not sponsored or promoted, on crypto-assets.
• Advertising of certain technical seminars, courses and conferences on crypto-assets that in no case encourage investment in crypto-assets.

Main novelties of the Circular

As the main new feature, the Circular establishes the obligation of prior notification to the CNMV of all advertising campaigns considered to be mass campaigns, i.e. those aimed at more than 100,000 people. In some cases, prior authorization may also be required even if they are not considered mass campaigns.

All other advertising activities will also be subject to CNMV supervision, but prior notification is not required.

Another important new feature is the obligation to avoid including the term “gift” or an equivalent term in the advertising message, in cases where there may be a fiscal impact, an economic incentive and in operations that may be considered as remuneration in kind: e.g., rewards programmes, token distributions (airdrops), etc.

With regard to campaigns that are already active, of course, it is no longer possible to make a prior notification, but the CNMV will be able to supervise and request information to check compliance with the Circular.

In addition, all advertising campaigns must contain clear, balanced and unbiased information, as set out in Annex I of the Circular. In particular, they shall contain specific information on the risks of the advertised product, in particular:

• The following warning message shall be included in the marketing communication: “Investment in crypto-assets is not regulated, may not be suitable for retail investors and the full amount invested may be lost”.
• A link or indication to the location of the additional information required by the Circular shall be included and identified with the following text: “It is important to read and understand the risks of this investment which are explained in detail in this location”.

This Circular will enter into force on 17 February 2022, and its publication lays the foundations for the legal obligations of advertising in the crypto sector, with the possibility of severe penalties of up to 300,000 euros in fines.