Crypto challenge needs more than an ad man’s touch

Advertising is a powerful tool. The UK advertising watchdog’s power is less clear.

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

The ASA on Wednesday formally rebuked seven crypto businesses for breaching advertising industry standards. It had already warned companies against underplaying the risks of investing in a volatile asset class, misleading investors and trivialising crypto in early July.

Papa John’s promotion urging customers to “Turn pizza into £10 worth of Bitcoin” predates that caution by a couple of months. But all the other rulings published by the ASA relate to ads published since mid-July.

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

But these are not the ads of an industry running scared of regulators. It is still a “wild west”, whatever companies say about wanting to comply. The advertising industry’s self-regulatory body — not a specialist in complex financial services — is unlikely to strike fear into the hearts of companies. It lacks the power to punish directly, even if it can refer persistent offenders to the Competition and Markets Authority to impose more serious sanctions.

There are many difficult questions about how to regulate digital assets and who should do so. It is not as straightforward as saying — to co-opt a Luno ad from earlier this year — “If you’re seeing bitcoin on the Underground, it’s time to regulate.”

But if you’re seeing bitcoin ads on the Underground, it’s probably at least time for the financial watchdog to regulate them.

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

It should be clear, though, that regulating crypto ads is not going to be enough. And one lesson from the ASA’s efforts is that it is important to pick the right regulator to take charge.

There are those who argue that to call crypto an investment dignifies it with a status it does not deserve. Peter Hahn, an emeritus professor of business and finance and a former adviser to the Prudential Regulation Authority, argued in a letter to the Financial Times that it would be better to regulate crypto like gambling, not investment.

The problem of FCA regulation giving credibility to crypto and creating confusion about what is covered and what is not, is one that the FCA is acutely aware of. The watchdog’s outgoing chair Charles Randell devoted a speech in September to the risks of “token” regulation, in all senses of the word. The memory of the London Capital & Finance minibond scandal, where investors assumed FCA regulation applied, not just to the firm but to the product they were buying, is raw at both the regulator and the Bank of England, which is now headed by the former FCA boss.

But treating crypto as gambling is not a satisfactory solution either. An independent report into the regulation of collapsed betting company Football Index showed the dangers of fuzzy jurisdictional boundaries between the financial and gambling watchdogs. The report found that the Gambling Commission was unaware of key parts of the business model of the “football stock market” and that the was FCA slow, inconsistent and poor at communicating with its fellow regulator.

Binary options — quick-fire bets on financial market moves — were also likened to gambling five years ago. It wasn’t until they were moved from the remit of the Gambling Commission to the FCA that they were banned.

The FCA’s own evidence is that the proportion of investors who equate crypto with gambling is falling. Whether the financial watchdog likes it or not, crypto has mainstream credibility that cannot be wished away. The FCA is going to have to accept a greater role. Co-ordinated international action is clearly needed and crypto regulation is undoubtedly complex. But there are dangers in relying on non-specialist regulators to clear up the mess in the meantime.

cat.rutterpooley@ft.com