Cracking down on ads leaves crypto unscathed

Advertising is a powerful tool. The power of the UK Advertising Standards Authority is less clear.

The Advertising Standards Authority is taking action against crypto again. The problem is that there really isn't anyone else in the UK.

The ASA formally reprimanded seven crypto companies on Wednesday for breaching advertising industry standards. It had already warned companies at the beginning of July against underestimating the risks of investing in a volatile asset class, misleading investors and trivializing crypto.

Papa John's promotion asking customers to "turn pizza into £10 worth of Bitcoin" precedes this warning by a few months. However, all other rulings published by the ASA relate to advertisements published since mid-July.

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

But these are not the indicators of an industry running in fear of regulators. It's still a "wild west" whatever companies say about fulfilling the desire. The advertising industry self-regulatory body – not a specialist in complex financial services – is unlikely to strike fear into the hearts of companies. There is a lack of power to punish directly, although repeat offenders can be referred to the competition and market supervisory authority to impose more serious sanctions.

There are many difficult questions about how digital assets should be regulated and who should do it. It's not as easy as saying - borrowing a Luno ad from earlier this year - "If you see Bitcoin on the subway, it's time to regulate."

But if you see Bitcoin ads on the subway, it's probably at least time for financial regulators to regulate them.

To be fair, the Financial Conduct Authority has been pushing for jurisdiction over crypto promotions for some time. This currently usually does not fall within the remit of the FCA. Government action is needed to expand the FCA's so-called perimeter. A Treasury consultation on this issue was completed more than a year ago. In a fast-moving industry, it's hard to say the UK government is keeping up.

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

There are those who argue that calling crypto an investment dignifies it with a status it doesn't deserve. Peter Hahn, professor emeritus of economics and finance and former adviser to the Prudential Regulation Authority, argued in a letter to the Financial Times that it is better to regulate crypto like gambling, not investments.

The problem of FCA regulation giving crypto credibility and creating confusion about what is covered and what is not is one that the FCA is very aware of. The watchdog's outgoing chairman, Charles Randell, dedicated a speech in September to the risks of "token" regulation in the truest sense of the word. The memory of the London Capital & Finance minibond scandal, in which investors assumed that FCA regulation applied not just to the company but also to the product they were buying, is raw among both the regulator and the Bank of England, now run by the former FCA boss.

But treating crypto as a game of chance is also not a satisfactory solution. An independent report into the regulation of collapsed betting company Football Index highlighted the dangers of blurred jurisdictional lines between financial and gambling watchdogs. The report found that the Gambling Commission was unaware of key parts of the “Football Exchange” business model and that the FCA was slow, inconsistent and poor in communication with its other regulators.

Binary options – quick bets on financial market movements – were also compared to gambling five years ago. It was only when they were transferred from the jurisdiction of the Gambling Commission to the FCA that they were banned.

The FCA's own evidence is that the proportion of investors equating crypto with gambling is falling. Whether the financial watchdog likes it or not, crypto has a mainstream credibility that cannot be wished away. The FCA will have to take on a larger role. Coordinated international action is clearly needed and crypto regulation is undoubtedly complex. But there are dangers in relying on non-specialist regulators to clean up the mess in the meantime.

cat.rutterpooley@ft.com