How (not) to market crypto. Regulators get tough on social media ‘over sharing’

October 14, 2021

The advertising activities and marketing strategies of Cryptocurrency Trading Platforms (CTPs) have been placed under the microscope in Canada, with regulators issuing guidance on the kind of language and promotions that could represent breaches of securities legislation.

The notice, issued by the Canadian Securities Administrators (CSA) and the Investment Industry Regulatory Organization (IIROC) of Canada is a response to the aforementioned bodies  becoming aware of activities that “may breach certain requirements of securities legislation and/or raise investor protection or public interest concerns”.

Protecting investors from false or misleading advertising is a fundamentally necessary step in such a fast-growing market. But is it also demonstrative of a hardening regulatory approach to cryptocurrency in the country?

As reported by TheBlockCrypto, Regulators in Canada have already set a serious tone in their dealings with cryptocurrency entities. So far this year the Ontario Securities Commission (OSC) has raised an enforcement action against long-established exchange Poloniex.

 Wealthsimple and Coinberry, two of the first crypto platforms to be officially registered into a Canadian registered framework intended to “allow crypto asset platforms to operate within a regulated environment” have also been prevented from offering USD Tether by the OSC – an indication, perhaps, of suspicions the regulator may have on the legitimacy of the stablecoin issued by Bitfinex.

Leading crypto exchange Binance had already sensed the way the regulatory winds were blowing, announcing in July that they would no longer service customers in Ontario.

Which practices come under fire?

The notice primarily concerns advertising, marketing and the use of social media in such a way that may be construed as false or misleading.

Examples of discouraged strategies include the use of hype statements such as “Important Update! BTC skyrockets! Don’t get left behind!” on the grounds that they may constitute advice or recommendation, and the practice of claiming ‘lower fees’ when the CTP profits instead by inflating asset prices.

Interestingly, the notice also instructs against platforms describing themselves to customers using ubiquitous terms such as  ‘Exchange”  or “Marketplace” unless they are a “regulated entity under Canadian securities legislation” or exempted from such regulation.

“Gambling style” promotions and schemes

Competitions that are frequently used by exchanges to promote a new token listing or ramp up new user numbers have also come under fire in the notice.

Time-focused promotions, where participants are encouraged to compete for a prize by trading a particular asset in a restricted timeframe are highlighted as being of particular concern to the regulators, with the notice explaining: “we are concerned that some of these strategies may inappropriately encourage investors to engage in excessively risky trading, taking on risks that they would normally avoid”.

“Let’s talk”

If you believe Coinbase’s take on their own struggle to coax  meaningful discussion out of the US SEC over their proposed lending programme  – you will appreciate the irony of another regulatory body peddling the “we welcome dialogue” line.

However, if the CSA and IIROC notice is to be taken at face-value, it appears Canadian regulators are open to hearing from Crypto trading platforms and perhaps even softening their stance on certain issues:

“As the technology and operational models of CTPs continue to evolve, the CSA and IIROC welcome continued dialogue with CTPs and stakeholders on issues that are developing and possible ways of complying with requirements and additional areas where flexibility may be appropriate”.

However, the notice also served a very clear warning that those who chose not to heed its advice could find themselves on the end of regulatory action – regardless of where they are based: “CSA members may take enforcement action against CTPs, including foreign-based CTPs that have investors in Canada, that do not comply with the requirements of securities legislation”.