Spain clampdowns on crypto advertising

The Spanish regulator, CNMV, published a Circular on 10 January 2022 introducing new rules on the advertising of cryptoassets in Spain. The move makes it one of the first European regulators to take action on advertising and comes alongside the UK's Advertising Standards Agency taking a stern line on UK crypto adverts and the publication of proposed rules for bringing cryptoassets within the scope of the UK financial promotion regime.

This briefing summarises the main aspects of the Spanish Circular and highlights certain nuances.

Background

The Circular 1/2022 of 10 January will enter into force on 17 February 2022, following several public communications, including two joint statements with the Bank of Spain, which warned of the risks of investing in cryptoassets (2018 ) and pointed out the role of advertising in the growing volume of investment in non-regulated assets (2021 ). The move places the CNMV as one of the first European regulators to respond to cryptoasset advertising. The Circular does not regulate the substantive regime of cryptoassets or their providers. That task that will lie with the European Markets in Cryptoassets Regulation (MiCA) as part of the Digital Finance Package launched by the European Commission.

What cryptoassets are covered?

The Circular is limited to advertising activity concerning cryptoassets that are legally considered as "investment objects" (objeto de inversión). It does not cover cryptoassets considered as "financial instruments" in the traditional sense, which are subject to Circular 2/2020 on investment services.

This dual regime between "traditional assets" and cryptoassets is also present in MiCA and leads to a key question: how to ascertain which crypto assets are considered to be financial instruments (and, ideally, which are not)?

A future extension of Royal Decree 4/2015 is hinted at in the first exemption contained in the Circular which refers to "cryptoassets that have the nature of financial instruments included in the annex to the consolidated text of the Securities Market Act". However the proximity of 17 February 2022 makes an extension to the categories of financial instruments unlikely.

This ambiguity could create uncertainty for entities advertising both derivatives and cryptoassets, subject to the risk of not knowing exactly what requirements their advertising activity must comply with.

What cryptoassets are not covered?

The list of exclusions from the concept of "advertising activity" uses concepts defined by MiCA and broadens the catalogue of exclusions contained in Circular 2/2020 (investment services) and the Circular 4/2020 of 26 June (payment and banking services).

In particular, NFTs (non-fungible tokens), white papers (explanatory documentation on a new issue) and technical seminars, courses, and conferences that do not encourage investment in cryptoassets are excluded from the new regime. However, seminars/courses are presumed to be advertising activity when they are promoted or held by the obliged parties or parties related to them, despite being offered free of charge or remunerated for a symbolic price. There is also an exemption for a form of utility token that allows access to a product or services which is only accepted by the issuers or a limited network and where there are no expectations of revaluation – in other words, no speculative returns.

Cryptoassets which by their nature are "not capable of being the object of an investment activity" also remain out of scope. The scope appears to be intentionally broad and vaguely defined. It remains to be seen how broadly the CNMV interprets the new Circular.

What is "advertising activity"?

It is defined as any advertising (publicidad) directed at investors (current or potential) resident in Spain through which cryptoassets are offered or merely drawn attention to, implicitly or explicitly, as an investment object.

Two automatic presumptions are introduced as to (1) when a cryptoasset is to be understood as being offered or drawn attention to as an investment object (when its acquisition is promoted or any reference is made to its profitability, price or value, current or future, that could suggest an investment opportunity) and (2) when advertising activity is directed at investors resident in Spain (when it is carried out by physical means in Spain, through Spanish media and when it is communicated in Spanish or official languages, unless it is proven that the communication is not directed or accessible to Spanish investors).

Who is caught?

Circular 1/2022 applies to "obliged subjects" (sujetos obligados), which are defined as:

• Crypto-asset service providers , where they engage in advertising activities;
• Advertising service providers (defined as third parties performing a process, service, or activity for or linked to another regulated entity using an advertising contract, including experts and influencers); and
• Any natural or legal person (other than the above) who carries out on its initiative or behalf of third parties an advertising activity on cryptoassets.

Therefore, the scope is broadened to cover people traditionally outside the direct remit of advertising regulation. Advertising service providers involved in advertising campaigns should exercise caution as the Circular 1/2022 places specific requirements on them that, traditionally, had been limited to entities that carried out the advertising activity.

What are the relevant requirements?

The basic requirements that in-scope entities must comply with (including specific format requirements) are as follows:

• To design advertising campaigns (campañas publicitarias) and each of the advertising pieces (piezas publicitarias) according to certain general principles and criteria (contained in Annex I to the Circular), depending on the nature and complexity of the crypto-asset advertised, the characteristics of the media used and the target audience;
• To provide a specific warning about risks;
• To include a link or indication of the location of additional information (referring to the information and risks contained in Annex II to the Circular).

In-scope entities will also have to ensure that:

• Marketing communications should avoid making references to high past returns, and if they do, they should comply with specific limitations;
• Any mention of limitations or exclusions to liability of in-scope entities for the content of the advertising should be avoided;
• The inclusion in the advertising message of superlative or diminutive adjectives, or expressions indicating advantages of the cryptoasset, must be based on objective and verifiable factors or data that allow this to be accredited;
• Specific risk warnings and the link/indication must occupy at least 20 percent of the total advertising piece.

In addition, in-scope entities must keep a record of the advertising activity carried out in the last two years, collecting general data on the advertising campaigns, specific information on the advertising pieces as well as identifying the advertising service providers and any advertising contracts or agreements formalised with them.

How can the CNMV intervene in advertising activity?

As a general principle, advertising campaigns do not require prior notification to the CNMV unless they are considered as "mass" campaigns (campañas masivas) (i.e. aimed at more than 100,000 people through any advertising medium, according to measurement criteria used in the advertising industry). This does not prevent the CNMV, at its discretion, from requiring prior notification from certain obliged subjects for all their campaigns, taking into account the potential impact of the advertising activity on the target audience.

In addition, the CNMV may request, at any time, information on advertising campaigns or pieces. These requests must be answered by the obliged entity within 3 working days.

For "mass" advertising campaigns, obliged entities must provide a prior notification form (to be published by the CNMV) together with the documentation and information subject to record-keeping obligations. This set of documentation must be submitted at least 10 working days before the execution of the campaign for it's analysis by the CNMV.

Once 10 working days have elapsed since the communication, the obliged entity may start the advertising activity (unless vetoed). However, a lack of response from the CNMV will not imply that the campaign complies with all the requirements of the Circular. In practice, obliged subjects should obtain express approval (or at least express non-disapproval) by the CNMV for each campaign.

Failure to submit prior communication prevents the campaign from going ahead and may trigger liability. In addition, the CNMV may inform the obliged parties of any mismatches and require the cessation or rectification of the advertising material (either for "mass" or regular campaigns). Obliged subjects must comply with these requirements within two working days (this period may be discretionally extended) and to demonstrate compliance or provide reasons for opposition.