Cryptoassets in Europe: BEUC's Recommendations

Cryptoassets on the Rise in Europe: Unveiling Risks, Loose Policies, and BEUC's Recommendations

The popularity of cryptoassets has grown steadily in Europe, as indicated by the European Securities and Markets Authority (ESMA) reporting an eightfold increase in the total market capitalisation of cryptoassets to around €1.5 trillion in the past two years. However, the rise of digital currencies brings significant risks not adequately disclosed to consumers on social media. 

The recent European Consumer Organisation (BEUC) alert sheds light on misleading advertisements for cryptoassets on popular social media platforms and advocates for more robust consumer protection measures. Although the upcoming EU regulation, Markets in Crypto Assets (MiCA), will require cryptoasset providers to obtain a license for advertising within the EU, the BEUC emphasises the need for further measures under existing consumer laws, as digital currency scams pose a significant risk of substantial financial losses for individuals.

Addressing Misleading Cryptoasset Promotion on Social Media

On June 8, 2023, the BEUC and eight European countries raised concerns about Instagram, YouTube, TikTok, and Twitter allowing misleading advertisements for cryptoassets on their platforms. They submitted an external alert to the European network of national consumer authorities, the CPC-Network, and the European Commission under Article 27 of EU Regulation 2017/2394, also known as the CPC Regulation. The report highlights a significant breach of consumer protection throughout the EU due to deceptive advertising of cryptoasset products. 

In addition, the guidelines of the EU Directive 2005/29/ CE related to unfair business-to-consumer commercial practices are also in violation as consumers face exposure to potentially harmful and dishonest behaviours.

By submitting the external alert, BEUC and its member organisations aimed to draw attention to the issue and prompt regulatory action to address these misleading advertising practices on social media platforms.

Loose Policies on Digital Currency Advertising

Social media sites have become powerful tools for promoting cryptoassets. These platforms allow traders and advertisers to reach large audiences and target specific demographics. Unfortunately, the advertising standards of these digital currency platforms are questionable, and there is evidence of misleading ads even when traders and advertisers comply with the guidelines.

Meta and Google initially banned digital currency promotion in 2018 due to emerging threats associated with unregulated financial products. These platforms relaxed restrictions and reintroduced cryptoasset advertising with loose and inadequate pre-approval processes. Advertisers must apply for platform approval to market digital currencies and provide documentation of required licenses or registrations. Exemptions are granted for events, education, and digital currency news, although these may present false information about benefits and downplay the risks.

Influence of Finfluencers

Influencers have become significant sources of information, especially for young people exploring investment opportunities. However, there have been numerous instances of consumers suffering substantial financial losses after following influencers' advice. For example, national authorities, such as the Dutch Financial Supervisory Authority (AFM), have intervened due to numerous complaints from consumers who lost money based on "finfluencer" tips. 

Earlier this year, outside the EU, UK regulators warned social media influencers about the dangers of promoting "get-rich-quick schemes," including cryptoassets and non-fungible tokens. The Financial Conduct Authority and Advertising Standards Authority collaborated on a campaign to prevent content creators from endorsing investment scams and high-risk financial products.

To assist influencers in making informed decisions, the regulators developed a checklist for them to review before accepting brand deals related to financial products and services. The list emphasises that engaging in illegal financial promotion is a criminal offence that can result in a maximum prison sentence of two years and an unlimited fine.

When seeking financial advice, investors should only approach licensed and reputable professionals. The rise of "fincluencers" underscores the importance of having a trusted partner who can safely guide you through investing in cryptoassets and arm you with all the information required to make sound investment decisions.

Legal Analysis and BEUC's Recommendations

In conclusion, the BEUC and its member organisations from eight European countries demand immediate action against the widespread misleading promotion of digital currencies on popular social media platforms. Promoting cryptoassets on Instagram, Twitter, TikTok, and YouTube constitutes a clear violation of EU consumer legislation, and more robust measures are needed to protect consumers. 

XEROF supports the following recommendations:

• Stricter Advertising Policies: The CPC-Network should request social media platforms to implement more rigorous conditions for advertising activities related to digital currency products. This includes promotional content about wallets, training, and investor events.
• Prohibition on Influencer Promotion: The CPC-Network should require social media platforms to include a ban on influencers promoting digital currency products in their terms of use. Additionally, there must be appropriate mechanisms to prevent consumers from being exposed to unfair commercial practices related to cryptoasset products.
• Enforcement and Reporting: The CPC-Network should mandate social media platforms to submit reports to the European Commission regarding the effectiveness of measures taken to prevent consumer deception through digital currency promotion. 

The above measures will protect social media users by preventing misleading cryptoasset promotion on Twitter, Instagram, TikTok, and YouTube. If you have any questions or want to learn how to protect your cryptoassets better, please contact our team to arrange a meeting.